Russia To Increase VAT Rate
As corporate tax rates have tumbled, value-added tax rates have tended to climb, as countries shift more of their tax burdens from income to indirect taxation. In the latest example, Russian President Vladimir Putin has signed into law legislation to hike Russia’s VAT rate to 20 percent from January 1, 2019.
Furthermore, VAT is now a very familiar tax globally, with around 160 jurisdictions having adopted some form of this tax. India is probably one of the more notable recent entrants into the VAT and GST club. The United States is certainly the most visible absentee, given that state sales taxes do not operate in the same way as a VAT. And, a few unlikely legislative proposals aside, the US has shown little inclination in joining.
However, just as there are some anomalies in corporate tax trends, with a few jurisdictions having raised rates recently, there are also some notable exceptions to the rules in the world of VAT and GST. Romania, for example, had a standard rate of VAT of 24 percent as recently as 2015. Now it stands at 19 percent, and the Government wants to reduce the rate further, to 18 percent next year, although this may be delayed until 2020. Malaysia, meanwhile, has gone against the grain even harder as the Government sets about fulfilling its pre-election pledge to repeal the GST regime and replace it with a sales and service tax in September.
Governments like VATs because they usually raise a lot of money relatively painlessly – administratively time-consuming VAT compliance may be for businesses, but taxpayers tend not to notice them as much as the bite taken out of their paychecks by income and other direct taxes. Indeed, the idea of a national VAT hasn’t been completely dismissed in the US. Far from it. Over the years various bills have been submitted to Congress for a VAT or national sales tax, often as a replacement for the federal income tax. It’s just that such proposals are rarely taken seriously and are really just symbolic efforts designed to draw attention to the shortcomings of the US tax code.
However, a recent development challenges the assumption that VATs are the great tax revenue motherlode, because, according to the IMF, India’s GST has depressed revenues rather than elevated them. However, this is likely due to not entirely unsurprising teething problems with the system rather than the beginning of a long-term structural problem.
Not that there’s likely to be a sudden shift in recent VAT trends just because Romania is slashing its standard rate, Malaysia is abolishing its GST, India’s GST isn’t working as expected, and the US will likely remain VAT-less for years to come. But it does go to show that not everything can be taken for granted in the world of taxation.
For more information on this, and other topical international tax matters, please visit: https://www.cchgroup.com/roles/corporations/international-solutions/research/global-tax-weekly-a-closer-look