More countries around the world are moving towards an 'indirect' tax system, something that could significantly influence FDI and crossborder tax systems.
A report from PricewaterhouseCoopers found that as a result of the financial crisis, many cash-strapped countries are being forced to raise revenues. One way to do this has been to introduce a VAT system or increase their existing rate.
VAT systems have now been implemented in 156 countries, with nine more considering using them by 2013. China and India are moving towards a uniform VAT system to replace current regimes, and countries in the Gulf Co-operation Council (GCC) are moving towards a VAT system.
Stephen Coleclough, an indirect tax partner at PwC, said that indirect taxes may seem more acceptable to businesses wishing to expand in foreign countries because they are passed on to the consumer. However, he warned that there is a less visible cost to businesses in terms of compliance, and the unfortunate reality that many indirect tax regimes can become complicated and unpredictable.
He added: “The cost of non-compliance can also be expensive in terms of penalties, audits and litigation, as indirect taxes come under increased scrutiny from the tax authorities.”