‘Global Rebalancing of Corporate Versus Indirect Tax Continues’
Corporate tax rates have been steadily falling for a decade, while indirect taxes in the form of value added tax and goods and services tax (VAT/GST) systems have been introduced across the globe, rising to higher rates and applying to more items as indirect tax systems mature, according to KPMG International’s annual Corporate and Indirect Tax Survey.
“Some commentators have wondered if these dual trends were temporary anomalies that would reverse over time,” said Anneli Collins head of tax policy at KPMG in the UK.
“Based on our reading of this year’s survey results, the chance of a return to the pre-2000 status quo is remote and the global re-balancing of corporate and indirect taxes will continue. However, the survey results also suggest that it is certain that the decade-long era of sharply declining corporate tax rates is almost behind us. International businesses should ensure they have the right mix of income tax and VAT/GST management resources in place to stay ahead of the long-term trend.”
The UK’s position relative to its EU peers has improved on corporate tax rates (based on current rates in the new online, interactive tax rate tool available at www.kpmg.com/taxrates ), but declined on indirect tax rates.
Following the reduction in the headline rate of corporate tax to 26 percent on 1 April 2011, the UK has moved from having the 20th lowest rate in the EU in 2010 and 2009 to the joint 18th in 2011. But the UK’s indirect tax rate moving up from its temporary rate of 15 percent to 17.5 percent and then to 20 percent has meant that the UK’s relative attractiveness has reduced.
The UK has moved from the lowest position in 2009, to the 3rd lowest in 2010 and now has the 8th lowest indirect tax rate in the EU.
“Reducing the UK headline rate of corporate tax has been a welcome move for many businesses and it’s encouraging to see the UK’s position relative to its European competitors improve as a result. The government has pledged its ambition to have the most competitive tax system in the G20 and there have been encouraging moves in this direction,” Anneli Collins continued.
“The UK’s position on indirect tax has moved in the opposite direction however and , while this is in line with the global trend we are seeing, it has arguably added to the current inflationary environment and the squeeze that so many households are currently feeling “Looking at the big picture on tax competitiveness, in order to make valid cross country comparisons, we need to dig deeper than headline rates. A low rate is a superficial indicator of tax competitiveness if the profit base being taxed is a higher number for a business in the UK than in other G20 countries.
“What the UK needs now is economic growth and we are concerned that the UK is among the least generous of all G20 countries to businesses making capital investments because they do not receive tax relief for much of their expenditure.
“This means that the effective rate that they are paying is often higher than in other countries and so they do not benefit from the low headline rates in the same way as other British businesses. We are worried that this may be affecting prospects of work for our construction industry, growth of manufacturing capability and infrastructure investment in transport and energy. It would be very welcome if this anomaly were to be addressed in the Autumn Statement later this month.”
According to the KPMG survey, the world’s average corporate tax rate has fallen in each of the past 11 years, from 29.03 percent in 2000 to 22.96 percent in 2011.
Average indirect tax rates at the global level have been stable, hovering at or near the 2011 average of 15.41 percent for the past three years.