Switzerland Intent On Pursuing VAT Reform

by Ulrika Lomas, Tax-News.com, Brussels

16 October 2009

During a recent meeting, the Swiss Federal Council once again proclaimed its support for the radical simplification of the country’s existing value-added tax (VAT) system, advocating both the introduction of a single rate, and the abolition of numerous exemptions.

Despite reaffirming its commitment to reform of VAT in Switzerland, the Federal Council nevertheless emphasized the need to submit a complementary message to the parliamentary commission responsible for economy and taxation (la Commission de l’économie et des redevances du Conseil national – CER-N), in order to advise them of a few recent changes.

Following submission of the original message, on June 25, 2008, the Swiss parliament decided to reform the country’s VAT system in two parts. On June 12, 2009, parliament adopted Part A of the reform, aiming to reduce the administrative burden on companies subject to VAT. As a result of the adoption of Part A, parliament must now consider the revised situation before examining Part B of the reform.

In addition, in a public referendum held on September 27, both the Swiss voters and cantons agreed to a temporary rise in the VAT rate, in a bid to generate much needed additional revenue for disability insurance.

Given that the proposals and calculations contained in the original message from 2008 are clearly out of date, the Federal Council has decided to invite CER-N to suspend the examination of Part B, pending submission of an up-to-date complementary message.

Confirming its commitment to radically simplify the country’s existing VAT system, as laid out in Part B of the reform, the Federal Council underlined the importance of the reform, which will serve to significantly enhance growth and reduce costs. According to the Federal Council, Part B of the VAT reform is designed to:

  • reduce by more than CHF1.8bn per year costs to the country’s economy due to hidden tax;
  • reduce costs associated with the numerous tax rates and exemptions, as well as reduce the risks for companies;
  • reduce the administrative charge for companies subject to the 22% rate (plus 11% from Part A); and
  • lower the rate of tax levied on services.

As a result of other corrective measures recently adopted, the Federal Council announced that the tax burden for individuals with the lowest incomes (40%) will not increase. For other households, the extra costs will be acceptable, the Federal Council confirmed.

The Federal Council also intends to explore, in its complementary message to CER-N, other possible means of simplifying the Swiss VAT system, such as the introduction of two VAT rates, or the abolition of fewer exemptions.

The aim of the Federal Council, as outlined in its original message in 2008, is to:

  • reduce the administrative burden for companies subject to VAT (Part A of the reform; and
  • support and strengthen the economy and growth (Part B of the reform).

On June 12, 2009, the Swiss parliament adopted Part A of the reform during a final vote. Part A is due to enter into force on January 1, 2010. The Swiss parliament has, however, not yet begun the examination of Part B.

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