A “critical need” for more revenue is causing many governments worldwide to turn increasingly to indirect taxes such as value-added tax (VAT) as a source of funds, according to a new survey from KPMG International.
The survey also revealed that the long-term slide in tax rates on company profits came to a halt in many countries in 2009, with 86% of the 116 countries studied holding their rates at 2008 levels such as the United States at 40% or in some cases increasing them.
"These shifts present clear evidence of a major, and a potential long-term change in the way that many governments around the world are funded," Tim Gillis, partner-in-charge of KPMG LLP's State and Local Tax practice, said in a statement. "For U.S. multinationals, it means that the management of indirect taxes will become much more important from a compliance, risk management and performance perspective."
Gillis said indirect taxes already exist in the U.S. at the state and local levels as sales taxes.
"Now the possibility of a federal VAT is starting to be put forth as a potential revenue raiser to help address the fiscal void that exists between the country's existing tax base and its largest deficit in history due to the economic recovery measures and the rising cost of entitlement programs,” Gillis said.
• The United States is the only G20 country without a federal VAT or GST and has one of the world's highest statutory corporate income tax rates.
• In Europe, indirect tax rates rose from 19.5% for 2008 to 19.8% for 2009 and in Latin America from 15.9% in 2008 to 16.2% for 2009.
• Among Asia-Pacific countries there was a marginal drop in the indirect tax rate from 10.9% in 2008 to 10.8% in 2009.
• More than 150 countries now have indirect tax systems and many governments that already have these systems are expanding or considering expanding the list of goods and services subject to VAT.
• In Latin America, the average corporate tax rate this year was unchanged at 26.9%, the first time there has been no change in average rates since 2004.
• In Europe, average rates stayed at 23.2%, the first time in 13 years that they have failed to fall year-on-year.
• Only in the Asia Pacific region has the average rate this year matched the cuts of previous years, falling from 28.4% in 2008 to 27.5% in 2009.
• The U.S. corporate tax rate is around 40%.