Businesses with effective indirect tax management remain a minority – KPMG

Businesses are not still prepared to deal with the people, process and technology needs that are essential to indirect taxes, according to the third annual edition of KPMG’s Benchmark Survey on VAT/GST (goods and services tax).

The survey shows that 64 per cent of respondents do not have a global head of VAT/GST and there has been no obvious commensurate increase in headcount either at a global, regional or local level in the last year. Moreover, the respondents are responsible to accomplish more with less with 21 per cent (26 per cent in 2012) not having any full-time VAT/GST employees.

Many chief financial officers continue to view the effectiveness of their tax department through the lens of corporate tax with insufficient focus on VAT/GST. Eighty three per cent of all respondents (versus 77 per cent in 2012) do not have VAT/GST performance goals visible and meaningful to the CFO. Now, with increasing government focus on taxes calculated on consumption rather than profits, CFOs should consider how their businesses are managing this real-time tax.

KPMG said that “on the positive side” there is a slight shift towards tax departments taking stronger ownership and accountability for VAT/GST. Last year, 51 per cent of respondents said the tax department had overall accountability versus 55 per cent this year. Having a clear understanding of who is accountable for VAT/GST in a business is the starting point for effective VAT/GST management.

Tony Pace, tax partner at KPMG in Malta, said: “From a Maltese perspective, generally VAT is just one of the so many responsibilities of CFOs and the presence of tax specialists within Maltese businesses is rare. By and large, corporate tax places higher in the boards’ agenda. With VAT, the focus is generally on compliance rather than on effective VAT management and value creation. However, even with the practicalities of managing VAT, as transactions get ever more complex and borderless and as VAT continues to develop, achieving full compliance can be a challenging task on its own.”

“CEOs, CFOs and heads of tax are managing a heavy burden of tax risks, from regulation and compliance to issues such as tax transparency and morality. However, business should recognise that governments are taking an increasingly aggressive stance to the collection of indirect taxes that are so important to fiscal budgets,” said Gary Harley, head of indirect tax, KPMG in the UK.

Survey findings

“With VAT/GST often the third largest cash throughput managed by business after sales and cost of sales the survey shows little resource is allocated to its effective management. We believe focus and investment will enable businesses to manage risk more effectively, improve cash flow and reduce bottom-line cost.”

Outside of Europe, the Middle East and Africa more than 50 per cent of respondents have not identified the key VAT/GST risks in their business. For businesses that have identified the key risks and have processes and controls in place to manage them, 16 per cent to 23 per cent of respondents across all regions rate their ability to manage these risks as poor.

The 2013 survey’s findings are based on the responses of 249 participants from 24 countries operating in a broad range of industries, with 23 per cent having an annual turnover greater than $20 billion and 80 per cent in excess of $10 billion.

In Malta, VAT accounts for around 22 per cent of the tax revenue.