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). This new tax will hopefully give a stronger support to industries in the United States.
The border adjustment tax levies a tariff on imports, and offers a tax rebate for exports. Supporters hope American companies’ adherence to cross border tax compliance will cause the US dollar to become stronger as a result of increased demand for cheaper (non-taxed) US-manufactured products. The strengthened US dollar would subsequently increase the purchasing power of the United States. This would, in turn, effectively offset the import tax.
However, the controversial tax has faced opposition from multiple angles.
Domestic importers feel that they will bear the brunt of the tax. Some retailers , such as Walmart, Nike and Kohl’s predict that this tax would cause prices to rise. Retailers also are concerned that such a tax may even lead to job cuts.
Exporters ‒ Although the plan is meant to encourage US exports, many large exporters fear that a stronger US dollar will result in higher prices on American goods that are sold abroad. This could lead to foreigners feeling discouraged about purchasing products made in the United States.
Economists at the New York Federal Reserve have expressed concerns about whether the US dollar will be sufficiently strengthened enough to actually offset taxes on imports. They fear that the measure will trigger a downturn in the economy if the goals are not met.
Legal experts have also raised concerns that the border adjustment tax may violate the rules set up by the World Trade Organization. One of these rules states that the tax must be applied equally to imports as well as “like” domestic products. You can read more about these concerns here.
Will this tax policy become law despite the controversy? This is a question that can only be answered with time, as we wait to see what the outcome of the border adjustment tax will be.
In the meantime, if you would like more clarity about where your business stands amidst the proposed border adjustment tax reforms, as well as any other tax reform, VATBox can help. With VATBox, you can have the tools necessary to 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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