NEW YORK, Oct. 22 /PRNewswire/ -- A critical need for more revenue is causing many governments worldwide to turn increasingly to indirect taxes such as Value-Added Tax (VAT) as a source of funds, according to KPMG International's latest annual survey of worldwide tax rates affecting businesses.
Findings from KPMG's 2009 Corporate and Indirect Tax Rate Survey indicate that many countries increased their indirect tax rates particularly their VAT or Goods and Services Tax (GST) for 2009.
The survey also revealed that the long-term slide in tax rates on company profits came to a halt in many countries in 2009, with 86 percent of the 116 countries studied holding their rates at 2008 levels such as the United States at 40 percent or in some cases increasing them.
"These shifts present clear evidence of a major, and a potential long-term change in the way that many governments around the world are funded," said Tim Gillis, partner-in-charge of KPMG LLP's State and Local Tax practice. "For U.S. multinationals, it means that the management of indirect taxes will become much more important from a compliance, risk management and performance perspective."
The United States is the only G20 country without a federal VAT or GST and has one of the world's highest statutory corporate income tax rates.
"Here in the United States, indirect taxes already exist at the state and local level in the form of sales taxes," said Gillis. "Now the possibility of a federal VAT is starting to be put forth as a potential revenue raiser to help address the fiscal void that exists between the country's existing tax base and its largest deficit in history due to the economic recovery measures and the rising cost of entitlement programs."
Indirect Taxes Contribute More Worldwide
In Europe, indirect tax rates rose from 19.5 percent for 2008 to 19.8 percent for 2009 and in Latin America from 15.9 percent in 2008 to 16.2 percent for 2009, according to the KPMG survey.
The KPMG survey also indicated that among Asia-Pacific countries there was a marginal drop in the indirect tax rate from 10.9 percent in 2008 to 10.8 percent in 2009, primarily due to a three percent VAT/GST cut in Sri Lanka.
More than 150 countries now have indirect tax systems and many governments that already have these systems are expanding or considering expanding the list of goods and services subject to VAT.
"Up until this year, taxes on corporate profits have tended to decline each year while indirect taxes have stayed roughly the same," said Gillis. "Indirect taxes have quietly been contributing a larger and larger part of many government incomes."
A Halt to Corporate Rate Declines
Commenting on the overall worldwide freeze on corporate tax rate declines this year, Hank Gutman, head of the Federal Tax Legislative and Regulatory Services group in KPMG LLP's Washington National Tax practice, said: "While this may be a pause before competitive pressures continue to drive corporate tax rates lower worldwide, there are some clear signs that any further cuts are likely to be paid for by measures to broaden the tax base such as widespread restrictions on tax allowances and tighter enforcement."
The KPMG survey shows that in Latin America, the average corporate tax rate this year was unchanged at 26.9 percent, the first time there has been no change in average rates since 2004.
In Europe, average rates stayed at 23.2 percent, the first time in 13 years that they have failed to fall year-on-year, the KPMG survey revealed.
Only in the Asia Pacific region has the average rate this year matched the cuts of previous years, falling from 28.4 percent in 2008 to 27.5 percent in 2009, according to the KPMG survey.
Gutman added: "Like many other governments worldwide, the United States is currently taking a look at actions to broaden the corporate tax base. What remains to be seen is whether the potential adoption of these measures will be accompanied by a rate cut. Depending on what unfolds, this may be a revenue raiser or revenue neutral. Businesses should certainly be aware of the proposals on the table and participate in the debate."
About KPMG LLP
KPMG LLP, the audit, tax and advisory firm (www.us.kpmg.com), is the U.S. member firm of KPMG International. KPMG International's member firms have 137,000 professionals, including more than 7,600 partners, in 144 countries.
Contact:
Ichiro Kawasaki / Robert Nihen
KPMG LLP
+1-201-307-8640 / +1-201-307-8296
ikawasaki@kpmg.com / rnihen@kpmg.com
SOURCE KPMG LLP
KPMG LLP
