Indirect Tax: how do businesses prepare for the seismic changes ahead?

How will countries raise additional revenue to counteract the fallout of the devastating economic cost of the COVID-19 pandemic?

Recent announcements of the tripling of the VAT rate in Saudi Arabia, of Indonesia expanding its VAT base to include transactions conducted through an electronic system and reports of the muted likelihood of GST reform in Australia indicate that the indirect tax plates are shifting in an attempt to aid economic recovery.

Indirect Tax change has started

The General Authority of Zakat and Tax in Saudi Arabia affirmed on 11 May 2020 that VAT will increase from 5% to 15% from 1 July 2020. Saudi Arabia introduced VAT only two years ago to ease its reliance on crude oil bounties, before the unforeseen plummet in oil prices and the COVID-19 pandemic that have triggered this massive rise.

In Australia, the shock deficit blow-out following the $320 billion stimulus splurge leaves federal Treasurer Josh Frydenberg  ruling out an increase in GST rate, saying only on ABC breakfast radio that “we have no plans to raise the GST”. However, no plans as yet have been revealed about potentially expanding the GST base.

Reserve Bank Governor Phillip Lowe said in April, “We should be looking again at the way we tax income generation, consumption and land in this country”.

In an interview with Thomson Reuters, leading tax expert Professor Robert Deutsch shared his proposal to extend the GST base, not the rate, to include basic food, health and education, with a permanent compensation plan for those who would be disadvantaged by the policy.

With the prospect of an increasing focus on indirect taxes by governments around the globe desperately seeking revenue, Neha Mahindru, Indirect Tax Proposition Lead at Thomson Reuters sheds some light in the Q&A below on how businesses can deal with the uncertainty ahead.

What is the current and potential impact of the shift in indirect taxes?

NM: Tax reform is typically a slow process, often met with conflicting views and approaches. However, as can already be seen, for example, by the dramatic increase in the VAT rate in Saudi Arabia as of 1 July 2020 that COVID-19 is appearing to be the catalyst in the tax reform process. Not only is the rate being increased dramatically but expected to be implemented by businesses in less than two months.

There are many impacts of this hike on businesses. For example, for businesses a GST/VAT rate change is not handled by just ‘flicking a switch’ – it requires lengthy implementation from a systems perspective. However, with the right technology in place, changes such as these can be simple and seamless for the business. The update to the GST/VAT rate/rule can be handled by the technology including any subsequent updates to rates or rules.

How can technology help businesses with the potential changes coming?

NM: Technology can assist businesses to stay on top of the global indirect tax legislative changes that we are expecting to see, whether these are rapid rate changes as is the case with Saudi Arabia or change in the GST base which is the case for Indonesia and potentially Australia. Technology will also support the way that these changes need to translate into a business’s GST/VAT return which takes into account any legislative changes and regulatory changes.

What changes can be expected from the Tax Authorities?

NM: It seems inevitable that post-pandemic, Tax Authorities will try to increase their indirect tax revenues by tightening up the compliance required from businesses – potentially through digitalised requirements. This has already been done in the UK, which requires the digital submission of AP/AR transactions to the Tax Authority. The intention of this from the Tax Authority’s perspective may be to make tax simpler, however from the perspective of businesses – this requires many changes and the exposure to risk of potential incorrect GST/VAT treatment on transactions being submitted to the Tax Authority.

Having the right technology in place would provide businesses with the assurance that:

  • the GST/VAT treatment of the AP/AR transactions being submitted to the Tax Authority are correct
  • businesses are not exposing themselves to any potential penalties or interest as a result of incorrect reporting or late submissions of GST/VAT returns
  • the latest legislative and regulatory changes are being reflected in their indirect tax reporting process.

Find out how you can stay on top of your GST processes and remain compliant in changing times even with new ways of working.

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