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Governments have a giant fiscal hole they need to fill as they grapple with the fallout from pandemic spending, slowing economies and rising inflation and borrowing costs.
The shrinking tax revenues are compounded by the digital transformation of economies regionally and globally. Many e-commerce transactions are originated outside physical borders, making it hard to levy both direct and indirect taxes under traditional registration rules based on physical presence (‘origination’).
Many governments are responding by broadening the definition of a permanent establishment from origination to where users and consumers are located (‘destination’). As an MNE, the need to register for GST/VAT is therefore likely to extend across far more states than at present.
Probing tax authorities are deploying ever more creative ways to target new registrants. Examples include searching through app stores for companies offering digital services in their jurisdictions that may not be registered for GST/VAT. And the net doesn’t just cover the big technology giants, but also a much wider array of organisations engaging remotely. Examples include education providers who’ve been delivering online classes for foreign students following border closures.
The backdrop to the changes in GST/VAT is the OECD’s two-pillar solution on taxing the digital economy and introduction of minimum corporate tax rates. In an unprecedented move, a global consensus has been built among more than 130 countries, including China, India and other major APAC economies. The need to enact the two-pillar solution within national legislation has triggered a wider reform of taxation that often has a direct or indirect bearing on GST/VAT.
The problem is that political sensitivities and differing national priorities are creating a complicated patchwork of varied and even conflicting rules across the APAC region. In relation to GST/VAT, this is reflected in marked differences in the turnover thresholds for registration and a wide variety of rates, exemptions and qualification criteria depending on the sector. Further fault lines include the potential clash between destination and origination economies. Jurisdictions with large populations such as India and China see the focus on destination and consumption as an opportunity to boost revenues. They can be pitted against originator economies such as the US, which could lose out on tax receipts.
The result is massive complexity for MNEs and the growing risk of compliance lapses and tax disputes. It’s telling that a poll of tax professionals logging into our APAC webcast cited the alignment of country-specific tax legislation and global tax policy as the biggest challenge facing their tax teams over the coming 12-18 months.
Increased Australian Taxation Office (ATO) focus on GST governance.
ATO using resources to identify businesses making supplies to consumers in Australia that aren’t currently registered for GST.
VAT on e-commerce transactions from 31 March 2022. Registration required prior to 1 April 2022.
Reverse charge available for B2B e-commerce transactions.
India
Destinated-based GST introduced in 2017. Levied on supply.
Rates vary from essential items (5%) up through standard rate for most goods and services (18%) and then luxury goods (28%).
Exemptions include agriculture, education and healthcare.
New Zealand
Extension for registered non-residents to claim NZ input tax in relation to goods that are sold offshore.
No GST on cryptocurrency or fungible cryptoassets. GST claimable when raising capital by way of cryptoassets.
Philippines
12% VAT applied to supplies of digital services via online platforms
Singapore
Overseas vendor registration effective from 1 January 2020.
Now being extended to include remote services i.e., no physical connection between supplier and recipient and no longer limited to digital services with minimal human intervention.
Rates rising: GST up to 8% from 1 January 2023 and 9% from 1 January 2024.
Changes to the zero-rating provisions for:
Media and advertising related services from 1 January 2022.
Travel arranging services from 1 January 2023.
Thailand
Non-resident service providers and electronic platform operators now required to register for VAT where revenue from B2C exceeds 1.8 million Baht.
Vietnam
Temporary VAT rate reduction from 10% to 8% from 1 February 2022 to 31 December 2022.
VAT required on e-commerce and digital supplies to businesses and consumers for businesses without a permanent establishment in Vietnam.
With so many more countries to register in and more tax to collect, traditional spreadsheet-based processes are likely to be unsustainably labour-intensive and prone to error. The big dangers are not only compliance breaches, but the risk that the demands of GST/VAT management could be a barrier to entry/operation in certain jurisdictions or lead to prolonged litigation
At least some level of automation and increased integration and collaboration across your international operations are therefore essential. The results would ease the strains, reduce the risks and provide the agility needed to future-proof your capabilities. Webcast participants noted in particular the potential to reduce turnaround times from weeks to days and tackle common issues within systems and processes.
Deploying the latest e-invoicing systems and moving indirect tax management over to the cloud would allow for real-time evaluation and management. It would also free up tax professionals to focus more time on strategy and oversight. Further benefits include allowing for dispersed staffing at a time when curbs on migration and increased competition for talent are leading to increased skills shortages.
Key question that needs to be addressed is whether to develop and run the necessary capabilities in-house, outsource them or opt for a hybrid model that combines the two. In-house solutions offer a high level of control, but the software licensing costs, and other resource demands could stretch your organisation. Outsourcing offers a cost-effective way to access the latest technology. But there are question marks over oversight, data quality and vendor management. The hybrid solution can offer the best of both worlds by transferring repetitive tasks to a third-party, while sharing oversight and control. The hybrid option was favoured by the tax professionals logging into the webcast.
Find out more
To find out more about what’s coming up and possible tax management solutions, log into the webcast.
Follow the link for EU VAT articles on e-commerce, Import One Stop Shop and other updates in indirect tax.
