The trend in rising VAT rates around the world shows no sign of abating as governments, desperate to balance their budgets amid falling corporate tax revenues look to make a fast buck.
Among economies with established VAT systems, the UK was one of a number which raised its rate this year, while there are plans for VAT hikes in Cyprus and the Czech Republic.
Raising VAT is considered to be less damaging politically than any other tax increase, though the plans have not been without opposition as critics charge that higher VAT punishes the poor, hits the retail sector and stifles the economy. In Greece, there has been the particular problem of fraud, where two consecutive VAT rises have threatened to push taxpayers into the black market and have caused the government to consider cutting the rate.
Despite rising rates, some countries have been looking at targeted VAT exemptions to stimulate certain areas of their economies. In Ireland this has taken the form of a temporary rate reduction for businesses such as hotels and restaurants in a bid to boost the tourism industry. If the saving is passed onto customers, which appears to be the case, the government may look to extend the special 9% rate beyond December 2013. And if initiatives such as this are seen to work, other countries may choose to follow suit with wider VAT reductions and exemptions designed to jumpstart ailing economies.
Even so, while indirect taxes are on the rise, several countries are close to or considering the introduction of VAT and GST, for example, India, as Khaitan & Co explain in their article.
International Tax Review's ninth edition of its Indirect Taxes Guide, co-published with six leading tax advisers, also has Ernst & Young exploring the latest developments in Russia, KPMG discussing how to reduce VAT costs in real estate transactions in Sweden, and HNP Counsellors Taxand looking at trends in Thailand. Meanwhile Atoz in Luxembourg pose the question of whether the VAT exemption for investment funds matches today's financial world, and PwC Germany looks at why the German Supreme Tax Court denies input VAT deduction.
As indirect taxes are only set to grow in importance for taxpayers, we hope you will find the insights these specialist tax advisers have to offer essential reading.
Indirect Taxes editor
International Tax Review