LISBON, Taxpayers 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.
These are the conclusions of KPMG’s latest tax report, the 2015 Global Tax Rate Survey, which was launched today at the KPMG Europe, Middle East and Africa Tax Summit in Lisbon, Portugal.
Drawing on information from KPMG member firms in 145 countries, the survey shows that while tax rates in general are not changing very 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. At the same time, tax concessions introduced during recession to support industries and encourage consumers to spend are being withdrawn.
Speaking in Lisbon, Greg Wiebe, KPMG’s Global Head of Tax, explained that this widespread change is being driven by global economic recovery and by changing expectations of state-provided social care.
“Governments have done what they can to keep economies active and healthy during the years since the global crash of 2008, and most have run up large debts in the process,” he said. “Now that many economies are moving out of recession and into growth, we are seeing legislatures updating their tax systems to increase revenues so that they can pay down the debt. At the same time, people’s expectation of the level of care that they can expect from the State has increased all over the world. Social welfare is expensive, and governments are caught between meeting the expectations of their populations and finding the means to pay for them.”
Simply raising income tax rates is difficult when companies and people can easily make comparisons between tax rates in different countries. Governments are having to find different ways to increase their 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.
There has also been a quiet movement in favor of indirect taxes -- Value Added Tax (VAT) or Goods and Services Tax (GST). With new VATs being introduced this year in Malaysia and the Bahamas, and plans for a similar tax in India and the Gulf States, VAT is now in more than 160 countries.
In most economies the VAT rate has started low and has gradually increased, to settle in a range usually between 15 and 20 percent. Tim Gillis, KPMG’s Head of Global Indirect Tax Services, said that this is the optimal range for a VAT. “Higher than this, and economies risk developing an underground economy,” he said. “Lower, and the tax does not generate enough revenue to meet government needs.”
The economic and social drivers for higher taxes comes at a time when a major international effort to update and modernize tax systems is reaching completion. Initiated by the Organisation for Economic Co-operation and Development (OECD) in 2013 and endorsed by the G20, the OECD’s Action Plan to address Base Erosion and Profit Shifting (BEPS) includes 15 key areas to encourage more transparency, better reporting and more co-operation between countries in which multinational companies operate.
On 5 October 2015, the OECD issued a final package of reports as well as a plan for follow-up work and a timetable for implementation. While implementation and 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 legislation and implementation.
“I applaud the work being done by the OECD,” said Greg Wiebe. “I’m 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.”
Full details of KPMG’s 2015 Global Tax Survey, including detailed information on tax rates and systems for each of 145 countries, can be found at: https://home.kpmg.com/xx/en/home/insights/2015/10/global-tax-rate-survey.html
Details of the OECD’s final report on its Action Plan for BEPS, and KPMG’s response, can be found at: https://home.kpmg.com/xx/en/home/insights/2015/09/taxnewsflash-beps-special-edition.html
Head of Integrated Communications, Global Tax
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