Companies need an improved plan to deal with the forces making a shift in the world of indirect taxation. It’s anything but difficult to overlook that national VAT systems are relative newcomers to the world of worldwide taxation.
As VAT systems spread, it’s pivotal to comprehend rate unpredictability, issues around scam and digital reporting requirements.
VAT Trends
Below are the top 5 trends you need to stay abreast of.
The VAT is expanding in acceptance & prominence
As a percentage of global taxation, VAT has grown steadily in importance from less than 5% in the 1960s to a peak of almost 20.2% in 2016 as per OECD data
It has stabilized since, primarily as a result of the global economic crisis in the early part of this decade. Essentially, the expansion was due to nations wishing to lower their corporate income tax rates, which acted as a means of attracting and maintaining businesses.
Nations are pushing boundaries on how high VAT rates could go
Apart from the rising popularity of VAT, an increasing number of jurisdictions that have introduced these types of tax are rising their rates.
Global VAT rates started trending upward after the economic crisis, according to the OECD, with a peak of 19.3% on average in 2015. They have been stable since, even though the OECD says that 10 nations now have rates above 22%, an increase from four in 2008.
VAT rules and rates are entering a specific period of instability
Tax laws around the world are in fluctuation and VAT is no different. In countries where it is already in existence, for example, tax authorities are doing everything in order to increase revenues by expanding the base.
Usually, zero-rated or exempted items contain newspapers and periodicals, financial services, real estate, medicines, food and (non-alcoholic) drink and transportation. Additionally, an increasing number of jurisdictions are to focus on emerging sources of income: cross-border e-commerce sales.
VAT frauds still exist
As nations are turning to VAT for a larger share of their tax revenues, then begins the VAT fraud where a business is presenting a refund request for VAT that have never been paid or fails to deliver VAT, that was already collected from the customers to the host government – has come into the limelight.
In more developed countries, there have been successful in lowering VAT fraud.
A per a report EU countries lost €137 billion in Value-Added Tax (VAT) revenues in 2017. The ‘VAT Gap’ – has actually reduced somewhat in comparison to previous years but it still remains high.
As A Result, governments are concentrating more time and effort in reducing VAT fraud by revamping their systems. For their part, this is putting pressure on businesses to keep pace with tax authorities’ changing systems and cutting-edge technology.
Ever-increasing e-reporting and compliance requirements
Mostly because of the upswing of VAT fraud, but also deriving from the rise of the digital economy and common desire between the tax authorities to reduce their operating costs and improve efficiency, VAT is “going digital.”
Traditional VAT compliance was formerly a relaxed affair. However, this is not going to remain the same anymore. Now it will be real-time online VAT reporting. So, you must ensure you have things correct the first time while uploading, there will be no time to make online correcting while you file these digital reports.
Today, the UK has just entered the territory of digital VAT filing. Making Tax Digital is HMRC‘s broad-based program for digitalization of the entire tax administration.
As of April 2019, firms with sales of $105,000 or more are required to maintain and file their UK VAT forms in a digital format.
The VAT Opportunity
Even as businesses need to steer VAT-related disruptions, the commotion offers an opportunity to reconsider the tax planning and compliance.
The result of these trends will have an increasing list of challenges for companies to deal with. Many are thwarted by the legacy organizational structures. The absence of any uniform standards globally has led many multinational companies to take a dispersed attitude to tax and VAT.
A growing risk for companies, as technology needs grow, is the dissemination of point solutions. Local tax or company teams, in a rush to comply with a new digital VAT regime, may also be inclined to ignore strategic solutions and may be more inclined to sign a contract with the local vendors. This is very inefficient and exposes the company and tax department to major risks.
Closing Note – R7VAT an HMRC Recognized Solution
With so many challenges it becomes important to find the right answer to your problems. Businesses are going to face challenges in filing for VAT online, but with R7VAT everything falls in place. It is an HMRC recognized solution that aims to make the life easy of the businesses by providing them cutting-edge solutions.
To know more about the kind of services we offer through our solution you can write to us at hello@r7vat.com or call us on +44-20-8099-1653.
