Economic, social pressures impacting domestic tax systems: KPMG International survey

Economic, social pressures impacting domestic tax

Australian corporate and indirect tax rates are out of step with global averages. This is revealed by KPMG International’s 2015 Global Tax Rate Survey, published today. Taxpayers in Australia and throughout the world can expect to pay more tax in the years ahead as governments expand their tax systems to repay debt and pay for increased social welfare, and international efforts to update tax legislation for the 21st century take hold.

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Drawing on information from KPMG member firms in 145 countries, the survey shows that while tax rates in general are not changing fast, governments are moving to widen the tax base, increasing the range of goods, services and activities that can be taxed to bring in more revenue.

The survey shows that social security rates have been increasing around the world. Global average social security rates for employers and employees are now higher than they have been at any time in the past seven years. Post-GFC tax concessions introduced during recession to support industries and encourage consumers to spend are being withdrawn, with an expected rise in personal tax burdens, exacerbated by bracket creep.

On main headline rates, Australia has heavier direct taxes and lower indirect tax rates than the global norm. The average Value-Added Tax (VAT) rate is now 15.79 percent (Australian equivalent GST is 10 percent) and average corporate tax rate is 23.68 percent (Australia 30 percent) while Australia’s individual income tax rate of 45 percent compares with an average of 41.43 percent.

David Linke, KPMG Australia National Managing Tax Partner, said: “The survey shows that raising income tax rates is increasingly difficult in an inter-connected international economy. Corporate taxes will fall as tax competition increases, although businesses will focus on the effective, rather than just headline, tax rates, taking incentives and allowances into account, when choosing where to invest.”

Indirect taxes

David Linke, KPMG Australia National Managing Tax Partner, said: “The survey shows that raising income tax rates is increasingly difficult in an inter-connected international economy. Corporate taxes will fall as tax competition increases, although businesses will focus on the effective, rather than just headline, tax rates, taking incentives and allowances into account, when choosing where to invest.”

There has been a clear global movement in favour of indirect taxes, with new VAT regimes being introduced this year in Malaysia and with China expanding its VAT system to cover industries not already included. India is replacing most of its current indirect taxes with a GST in 2016, and the Gulf States are well-advanced in their plans for a VAT system. When that happens, VAT will be established in more than 160 countries, with the US a notable exception.

David Linke said: “The study shows that indirect tax rates have a natural optimum range between 15 percent and 20 percent. In the medium term, most countries will settle on a rate in this range, including our Asia-Pacific neighbours who presently have lower VAT rates. Australia’s current GST rate and relatively thin base will also come under increasing scrutiny.”

Base erosion and profit shifting

The economic and social drivers for higher taxes comes at a time when a major international effort to update and modernise tax systems is reaching completion. The Organisation for Economic Co-operation and Development’s (OECD) Action Plan to address Base Erosion and Profit Shifting (BEPS), released earlier this month, includes 15 key areas to encourage more transparency, better reporting and more co-operation between countries in which multinational companies operate.

David Linke said: “BEPS will influence all taxes. It will widen the corporate tax base, as well as increase disclosure and reporting obligations. On indirect taxes, in Australia we are already seeing the charging structure for VAT/GST on services and intangibles being altered with overseas businesses selling to our consumers being required to pay tax here.”

“But the increased information requirements of country by country reporting will also mean that personal taxation is affected. It will become much easier for countries to track who has been working inside their borders and for how long. Tax authorities can be expected to look closely at the contribution that globally mobile employees are making to profits generated in their jurisdiction. They will no doubt look for opportunities to levy social security, personal and even perhaps corporate taxes.”

While timing will vary across borders — and some European jurisdictions have already incorporated aspects of the plan — the final OECD release marks a crucial shift from the recommendation and consultation phase of BEPS to domestic legislation and implementation.

KPMG’s Global Head of Tax, Greg Wiebe, added: “I applaud the work being done by the OECD. I am confident this initiative will lead to a different tax system in the future, one that is fit for purpose, encourages more transparency and is better equipped for the demands of the 21st century.”

Further information

Ian Welch

Senior Communications Manager, KPMG Australia

Mobile: +61 400 818 891

iwelch@kpmg.com.au

2015 KPMG Global Tax Rate Survey

A compilation of Indirect, Corporate, Individual and Social Security Tax rates.

 
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