Survey sees countries reluctant to broaden tax base

In the area of indirect taxes, it seems that few countries are yet heeding the Organisation for Economic Co-operation and Development (OECD) advice to broaden their Value Added Tax (VAT) base, according to global tax policy outlook for 2015.

An outlook by E&Y shows that only four of the 32 countries surveyed forecast that the VAT base will expand in 2015, while two (China and Poland) forecast that their VAT base will actually contract.

While the underlying trend of countries moving toward a broad-based, low-rate corporate tax environment continues to play out (and even accelerate slightly), a large proportion of countries report that their overall corporate income tax burden will increase in 2015 (31% of countries surveyed for 2015, compared with 26% in 2014).

This certainly aligns with recent OECD data that show that total tax revenues are increasing in 2013 among a majority (21 of 30) of OECD members who participated in their survey, with the overall OECD average of tax revenues to GDP climbing by 0.4 percentage points in 2013, to 34.1 percent, compared with 33.7 percent in 2012 and 33.3 percent in 2011. This is still below the 36 percent share in 2007.

“But while the broad-base, low-rate mantra is arguably the most extensive trend identified in our data, our respondents report that more than six in 10 countries are making some form of BEPS-related tax reform, before the BEPS recommendations are in full and final form,” the outlook indicated.

“Chile is our 2015 nomination for the country with the highest volume of overall change, taking that mantle from joint nominees Australia and France in 2014. Unfortunately, the vast majority of these changes will create an increased burden for corporate taxpayers and the country is forecast to see change in 12 of the 18 data points measured in our survey, including being the only country of 32 surveyed to be known or forecast to see a headline corporate income tax increase in 2015,” according to the outlook.

Moving back to a global lens, personal income taxes (PIT) also seem to be following the broaden-the-base mantra in 2015, though top marginal rates remain stable. Nine of the 32 countries report an increased PIT burden in 2015, surpassing the seven who report a decrease in the overall PIT burden. Thirteen countries report a stable PIT burden in 2015, while two (Chile and Germany) report that the outlook will be mixed.

Only three of the 32 countries (Australia, Japan and South Africa) report that top marginal rates of PIT may or will increase in 2015. Three countries (Ireland, Malaysia and Spain) report that top marginal PIT rates will fall, while the remaining 26 forecast a stable top marginal rate of PIT.

The remaining 26 forecast a stable VAT base for 2015. Looking back, the number of countries increasing their headline VAT rates each year dropped dramatically from 2011 onward, reflecting the end of the financial crisis, where reduced VAT rates were a stimulatory tool of choice.

In 2015, our respondents forecast that just three of the 32 countries surveyed (Luxembourg, Malaysia and South Africa) will see an increase in their headline rate of VAT, while 29 forecast a stable rate. None of the 32 sampled countries forecast a headline VAT rate reduction.

 

Iheanyi Nwachukwu