A Peek into the Future of Indirect Tax
As international regulatory measures continue to evolve, those responsible for global tax management face growing challenges. With BEPS, Brexit, and VAT soon to be applied in every major economy in the world except for the US, the global tax landscape is being transformed. How will today’s changes affect tomorrow’s tax management? What will VAT reclaim look like over the next few years? Here are five points to consider:
- A wider VAT base taxed at a single rate – With VAT recovery rates seemingly maxed out at an average of over 19%, countries will seek new ways to gain revenue. Governments may tax a more comprehensive range of goods and services ‒ such as applying VAT to financial services, and removing concessionary rates in order to consolidate to a one-rate indirect tax system. In the future, will the world’s indirect tax system be modelled after New Zealand’s – the country generally regarded as having the most comprehensive indirect tax base?
- Cross-border framework based on the destination principle: BEPS demonstrates the need for clear VAT policies on cross-border services and intangibles. The response has been the ‘‘destination principle,” which states that VAT should be levied in the location where goods and services are consumed, not in the place from which they originate. In the future, will there be simplified registration and compliance protocols to enable suppliers without a physical presence to properly account for VAT? In the future, will technology bridge the gap between tax collection in developing and developed countries?
- Technological innovations thanks to Big Data: Big Data and IT analytics can transform the way businesses and tax authorities operate and relate to indirect tax collection and payment. Digital accounting may enable tax collection/payment in real-time. Data analytics may help tax authorities develop risk profiles and flag suspected audit issues, significantly reducing the potential for fraud. Companies will be compelled to generate systems to ensure data quality and accurate, transparent processes. In the future, will data collection requirements drive the direction of tax rules?
- Reduced privacy: With more data in the hands of Big Brother, it will be seamless for banks and credit card processors to gain access to transaction-based data. Additionally, indirect tax systems will heavily rely on VAT registration status, or their address details, and that information will likely become publicly available as well. In the future, will access to this level of data facilitate multi-country tax authority audits?
- Changing roles of tax professionals: As a result of the Big Data explosion, tax managers will be required to focus on strategically applying technology, such as upgrading systems to meet changes in products, services and technology; testing the integrity of systems; and analyzing trends and exception reporting. In the future, will businesses prepare, retrain or recruit their tax staff to respond to these challenges?
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