Tax & Accounting Blog

Making Sense of the Facts – a Global Review of Indirect Tax Trends

Indirect Tax, VAT-GST Management May 19, 2010

From the beginning of 2010 the total indirect tax rate changes in our international practice (outside the US) were approximately 40, which is consistent when compared with the changes made in the same time period last year.  Predominantly, the trend has been for governments to increase the rates of indirect taxes as a source of reliable revenue.  For example nine Indian States have increased the VAT rates since the beginning of 2010. Indonesia has increased the maximum rate of the luxury tax to 200% and Canada’s province of Nova Scotia will increase its provincial component of the HST to 10% on July 1. 2010.  Many more are planning increases including Panama, Belize, New Zealand, and Quebec, Canada.   

 While there is a general trend to increase the VAT worldwide, there seems to be disunity in Europe. Some European states are relying on higher VAT rates to shore up its budget deficits.  The most notable increase in the VAT rate has been in Greece where the rate has jumped from 19% to 21% and on July 1, 2010 it will rise again to 23%.   Iceland presently has the highest VAT rate at 25.5% of all existing and aspiring EU Member States after its economy wielded to the global financial crisis. Other European states that saw increases in the VAT rates in the first half of 2010 were Belarus and Moldova. In July of 2010 Finland will increase its VAT rates with a single percentage.  There are calls for VAT rate increases in Spain, Portugal, Latvia, and Switzerland.  It is likely that by the end of this year or early 2011other European countries will increase their VAT rates. 

At the same time some European countries are bucking the global trend, choosing to not increase the VAT or even lower some VAT rates as a fiscal stimulus to their economies. In the first half of 2010 Germany, Ireland, Belgium, Hungary, and Slovenia saw targeted decreases of VAT specific to certain product taxability.    

Other European countries have gone back and forth on their VAT rate several times.  Bulgaria’s government for example has committed to lowering the VAT rate in principal, however due to immediate budgetary constraints may temporarily be forced to increase it, instead. Latvia and Romania seem to be caught in the same dilemma between budgetary deficit constraints and economies that need stimulating.