No escape: Businesses cannot ignore indirect tax

Harley says businesses with effective VAT management remain the minority

In a late 2012 OECD report, titled Consumption Tax Trends 2012, it was observed that consumption taxes now account for 31% of all revenue collected by governments of OECD member countries and 20% of taxation revenues worldwide. Indirect tax is now one of the most important sources of revenue for governments, second to social security contributions and personal income taxes, and well ahead of corporate income taxes, specific consumption taxes and property taxes. Indeed, VAT, GST, sales tax, consumption tax – whatever you call it – indirect tax is here to stay. The question now for multinationals is how to develop a practical, yet detailed, framework for the indirect tax function to support and add value to the broader business. This is where KPMG's third annual edition of the Benchmark Survey on VAT/GST comes in.

KPMG's survey shows that 64% of businesses do not have a global head of VAT/GST and, alarmingly, 21% of businesses do not have any full-time VAT/GST specialists. Meanwhile, 58% of all respondents say that VAT/GST has a negative cash impact on their business, up from 51% in 2012.

But, survey respondents say that the CFO continues to view the effectiveness of their tax department through the lens of corporate tax, with little or no focus on VAT/GST. A majority of all respondents (83%) still have to establish VAT/GST performance goals that are visible and meaningful to the CFO.

Yet, there is a significant shift towards tax departments taking ownership or accountability for VAT/GST globally. For 55% of all respondents (rising to more than 70% in the case of larger businesses – respondents with turnover greater than $20 billion), the tax department is now accountable for VAT/GST. Having a clear understanding of who is accountable for VAT/GST in a business is the starting point for effective VAT/GST management.

The survey shows that businesses are still not prepared to deal with the people, process and technology needs that are essential for the effective management of the indirect tax function.

There is greater evidence of quality VAT/GST management in Europe, the Middle East and Africa (EMEA). In Asia Pacific (ASPAC) and Latin America (LATAM) businesses should be concerned about how compliance risks are being managed. This is particularly important in these regions given the complexity of their VAT/GST regimes.

Outside of EMEA, more than 50% of respondents have not identified the key VAT/GST risks in their business. For those businesses that have identified the key risks and have processes and controls in place to manage those risks, 16% to 23% of respondents across all regions rate their ability to manage the risks as "poor".

Given the scale of VAT/GST throughput being handled by global businesses, significant opportunities are being missed to manage risk more efficiently and effectively, improve cash flow and reduce bottom-line cost.

Businesses with effective VAT/GST management are still in the minority. There is a very long way to go before the resources, processes and technology strategies are embedded and accountabilities set to adequately manage the global VAT/GST challenges. Given the rapid pace of change – expected to continue through 2013 and beyond – even the more advanced businesses are simply running to stand still, while others are falling further behind.

For more information on the Benchmark Survey on VAT/GST please visit www.kpmg.com/benchmark.For more information from KPMG's Global Indirect Services practice, please visit: kpmg.com/indirect