Governments around the world are seeking to hike indirect tax rates to raise revenue while cutting corporate tax rates to attract investment, a KPMG International report on global corporate and indirect tax rates has found.

Since January 2012, Europe’s average indirect tax rate climbed from 19.71 per cent to 20 per cent

The KPMG survey indicates that corporate and indirect tax rates around the world are constantly changing.

Since January 2012, Europe’s average indirect tax rate climbed from 19.71 per cent to 20 per cent. Hungary claimed the highest indirect tax rate in 2012 (27 per cent), followed by Iceland (25.5 percent), and Sweden, Denmark, Norway and Croatia (25 per cent).

Malta has the second lowest VAT rate (18 per cent) among the EU’s 27 member states, two percentage points below the 2012 European average, standing at 20 per cent.

The predominant trend over the last two decades shows an increasing number of countries resorting to indirect tax to fund government finances. According to the Organisation for Economic Cooperation and Development, value added tax and goods and services taxes are now imposed in more than 150 countries. They account for 20 per cent of taxation revenues worldwide.

The scope of VAT and GSTs already in place is expected to broaden. Interestingly, Malta’s VAT rate has remained unchanged for the past nine years. It was last increased by three percentage points from 15 per cent to 18 per cent and, according to recent pre-election public statements, the Government is not planning an increase to the 18 per cent VAT rate.

At the same time, other types of indirect taxes such as financial transactions taxes are being introduced. Germany, France and nine other EU member states will pursue the financial transaction tax. The European Commission believes the adoption of the FTT is expected to deliver revenues of €30-€35 billion a year.

Malta has opted to stay out of the FTT regime.

The survey indicates that corporate tax rates have been in a state of decline for more than a decade, and nothing seems to indicate a shift in the opposite direction. Figures show that Europe’s average corporate income tax rate fell by 0.38 per cent to 20.5 per cent. This trend will hold strong insofar as many countries will use corporate tax and other tax incentives to remain competitive and attract foreign investment.

With lower corporate tax rates but with no less pressure to raise more revenue from their tax bases, tax authorities are becoming aggressive in tax audits and investigations, resulting in larger adjustments, more potential for penalties and interest, and escalating tax controversy.

In the wake of constant developments, companies will have to put more effort in keeping up with changes in the multiple jurisdictions in which they operate. With ongoing tax updates in multiple jurisdictions, it may pay a company to outsource its income and indirect tax activities rather than increasing its head count.

With a growing sense that taxes must be shouldered collectively, and in order to build trust with their stakeholders and society at large companies are likely to become more transparent about the amounts of tax that they pay within each jurisdiction on a fully consolidated basis.

The survey is available at www.kpmg.com/MT/en/ under Issues And Insights.

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