Seems like all the talk these days is around House Speaker Paul Ryan’s economic plan. This plan fundamentally changes America’s tax system by drastically lowering the corporate tax rate from 35% to 20%, eliminating the tax breaks traditionally enjoyed by corporate America — such as net interest deductions — and implementing a new border adjustment tax (BAT).
The border adjustment tax levies a tariff on imports, and offers a tax rebate for exports. Supporters hope this reform will cause the dollar to strengthen as a result of increased demand for cheaper (non-taxed) US-manufactured products. The strengthened dollar would subsequently increase US purchasing power, effectively offsetting the import tax.
However, the controversial tax has faced opposition from multiple angles.
Domestic importers feel they will bear the brunt of the tax. Some retailers like Walmart, Nike and Kohl’s predict that this tax would cause prices to rise, and may even lead to job cuts.
Exporters ‒ Although the plan is meant to encourage US exports, large exporters fear the strengthened dollar will result in higher prices on American goods sold abroad, discouraging foreigners from purchasing US-made products.
Economists at the New York Federal Reserve expressed concerns about whether the dollar will be sufficiently strengthened to actually offset taxes on imports, fearing the measure will trigger a downturn in the economy if the goals are not met.
Legal experts have raised concerns that BAT may violate the rules set up by the World Trade Organization. One of the rules states that the tax must be applied equally to imports and “like” domestic products. Read more about these concerns here.
Will this tax policy become law despite the controversy? Only time will tell.
In the meantime, if you’d like clarity about where your business stands amidst the proposed tax reforms, VATBox can help you determine whether your cross-border operations will be effected, and whether your company is properly prepared for the new risks. Check out how it works.
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