Challenges of VAT systems: Tax experts discuss solutions

Challenges of VAT systems: Tax experts discuss solutions

Approximately 300 participants from different countries, jurisdictions and international organisations, as well as representatives from the business community and academia, gathered last week in Paris for the Global Forum on Value Added Tax (VAT).

Tax experts at the forum, which is the fourth meeting of the Organisation for Economic Cooperation and Development (OECD) discussed solutions for common challenges in the design and operation of VAT systems.

As VAT continued to spread across the world, international trade in goods and services has also expanded rapidly in an increasingly globalised economy. One consequence of these developments has been the greater interaction between VAT systems, along with growing risks of double taxation and unintended non-taxation in the absence of international VAT co-ordination.

Tax experts at the forum also focused in particular on the policy and operational challenges faced by tax authorities in the era of digital globalisation. They discussed the efficient and the effective implementation of the standards and mechanisms for addressing the challenges recommended by the International VAT/ GST Guidelines.

Value Added Tax (VAT; also known as Goods and Services Tax, under the acronym GST in a number of OECD countries) has become a major source of revenue for governments around the world. Some 165 countries operated a VAT at the time of the completion of the International VAT/GST Guidelines in 2016, more than twice as many as 25 years before.

The International VAT/GST Guidelines now present a set of internationally agreed standards and recommended approaches to address the issues that arise from the uncoordinated application of national VAT systems in the context of international trade. They also focused in particular on trade in services and intangibles, which poses increasingly important challenges for the design and operation of VAT systems worldwide.

This comes on the heels of the OECD Council releasing the recommendation on the application of Value Added Tax/Goods and Services Tax (GST) to the International Trade in Services and Intangibles (the VAT/GST Recommendation).

This Recommendation is the first OECD Act in the area of VAT and it is open to “adherence” by non-OECD members. The VAT/GST Recommendation incorporates the International VAT/GST Guidelines, which were developed with the active involvement of a wide range of countries beyond the OECD and the global business community.

Participants also discussed the boom in e-commerce on which often no VAT was collected had been identified as a key challenge in the context of the OECD/G20 Project on Base Erosion and Profit Shifting (the BEPS Project) and the solutions to address this challenge had been included in the final package of BEPS measures that was completed in 2015.

These solutions are now also incorporated in the VAT/GST Recommendation and a considerable number of countries have already successfully implemented them or consider doing so.

Major international developments in the area of taxation since 2015 have shown to have influenced tax policy reforms across the OECD. Many of the reported corporate income tax (CIT) and VAT reforms reflected the impact of the adoption of the recommendations agreed upon as part of the OECD/G20 Base Erosion and Profit Shifting (BEPS) project and the endorsement of the OECD International VAT/GST Guidelines.

“Tax policies have direct implications on economic growth as well as on how the benefits of growth are shared across the population,” said Pascal Saint-Amans, director of the OECD Centre for Tax Policy and Administration. “Monitoring tax policy reforms over time and understanding the context in which they were undertaken is crucial to informing tax policy discussions and supporting countries in the assessment and design of tax reforms.”

 

IHEANYI NWACHUKWU

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