UK Tops Global 'VAT-Friendliness' Survey

by Mike Godfrey, Tax-news.com, Washington

21 August 2008

The UK has been rated as having the most user-friendly VAT regime in a study of countries with GST and VAT style sales tax systems, commissioned by the Canadian arm of business advisors KPMG.

The KPMG survey examined GST systems in 32 countries and polled the views of senior finance professional in more than 500 companies worldwide. It found that the UK was rated as most "VAT-friendly" and Italy was rated the most difficult. The US ranked eleventh. Canada's GST system ranks seventh easiest for businesses among indirect tax systems in the 32 countries.

"While the survey demonstrates that Canada's GST indirect tax system is "user-friendly" from a global perspective, we are not there yet" said Deb Taylor, National Partner in Charge of KPMG's Indirect Tax Group in Canada. "It's interesting that one of the countries whose respondents found the Canadian indirect tax system difficult to work with is China, one of Canada's largest trading partners."

Taylor continued: "In addition, some of the Canadian respondents also ranked Canada's system as difficult. Five of our provinces have both GST and a retail sales tax that businesses have to deal with. Based on the survey results, perhaps Canada could be more competitive if we didn't have both retail sales tax and GST systems in these provinces."

The research, some of the most extensive KPMG has ever commissioned on the subject, helps to confirm that indirect taxes are becoming increasingly important for global businesses as corporate income tax rates decline.

Of all the global businesses KPMG surveyed, 75% believe that governments will rely more on indirect taxes in the future. Sixty-four percent of Canadian respondents agreed, despite the recent reductions in the GST rate to 5%.

When asked about income tax and VAT/GST compliance risks, 45% of global respondents rated errors in VAT compliance as the top global tax risk for their organization. In Canada, 35% of respondents were more concerned about risks in Indirect Tax than corporate income tax risks.

"Even though the majority of Canadian respondents predict that GST will increase as a source of revenue to the government, and more than one-third of the respondents view indirect tax as a risk for their organization, it's interesting that the Canadian companies surveyed had one of the smallest increases in their indirect tax management resources in the last five years out of all the organizations surveyed," said Taylor.

The survey also provides evidence on the amount of VAT/GST that global organizations are working to manage every day, with 82% of those responding indicating their organization's annual "VAT throughput" was between USD200 million and USD1 billion each year.

Of Canadian respondents, 86% said their annual GST/VAT throughput (GST collected on sales plus GST paid on purchases) fell into this USD200 million - USD1 billion range, with 10% reporting their annual GST/VAT throughput was more than USD1 billion.

"GST throughput can involve much more money than income tax, and the cost remains significant even without profits," said Taylor. "Companies that aren't paying attention to these costs may be missing opportunities to minimize them."

The respondents were asked which jurisdictions they had found it most easy or most difficult to do business in from a VAT perspective. Following the UK to complete the top five jurisdictions with GST were the Netherlands, Finland, Switzerland, Luxembourg and Singapore. The top ten was rounded out by Ireland, Japan and Germany.

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