By Daniel Hunter
The average global indirect tax rate average increased by 0.17 percent to 15.50 percent during 2012, whilst the global corporate tax rate average declined very slightly by 0.09 percent to 24.43 percent over the year, according to the annual Corporate and Indirect Tax Rate Survey from KPMG International.
“The movements observed mirror the trends seen in past years. Indirect tax rates around the world are rising as governments look to increase revenue," Chris Morgan, head of tax policy at KPMG in the UK, commented.
"However, governments are less willing to raise direct tax rates due to the need to attract and keep investment. Nevertheless, the fact that overall there has only been a slight reduction suggests there will not be a race to the bottom as the need to remain competitive is balanced by the need to fund the public purse.
"The UK has been bolder than the global trend in terms of reducing its corporate tax rate,” Chris Morgan continues. “The government reasserted its commitment to making the British tax system the most competitive in the G20 with the Chancellor’s announcement in December 2012 of a staged reduction in the corporate tax rate from 24 percent to 23 percent this April and then to 21 percent in 2014 — an additional one percent drop on what had previously been expected.”
Looking at the indirect tax rate trends globally, Africa and Asia had the most significant increases, from 14.17 to 14.57 percent and 11.84 to 12.24 percent respectively. A notable indirect development in 2012 saw the introduction of a VAT Pilot Program in Shanghai and its subsequent extension into other 10 other provincial-level regions.
“We expect the global indirect tax rate average to continue to rise in 2013 as more governments continue their path to economic recovery,” says Gary Harley, head of indirect tax at KPMG in the UK. “Throughout 2013 a number of countries’ VAT rates will jump up including Finland, Dominican Republic and Cyprus.”
As previously noted, the global corporate tax rate average remained almost the same. There was a small decline of 0.09 percent to 24.43 percent since January 2012. For 2013 many country budget proposals include corporate tax rate reductions, including the UK. Countries with proposed corporate tax rate drops in 2013 include Mexico, Sweden and Ecuador.
“Corporate tax and the way in which it operates internationally is the subject of much debate here in the UK. However, it will never be abolished or abandoned,” says Chris Morgan. “Profits will always be taxed. That is what governments and the general public want. But with business being global and taxes being levied on a country-by-country basis more discussions will arise on how profits are ’allocated’ to various jurisdictions. What is crucial is that this debate happens in an informed and transparent manner.”
The highest and lowest tax rates
For 2012, the United Arab Emirates claimed the highest corporate tax rate (55 percent), followed by the United States (40 percent) and Japan (38.01 percent). Of those countries with a corporate income tax, Montenegro had the lowest corporate income tax rate (9 percent), followed by a number of countries at 10 percent including Serbia, Cyprus, Paraguay and Qatar. It should be noted that the “statutory tax rates” could differ from the “effective tax rate”. For example the United Arab Emirates in practice does not levy corporate income tax.
On the indirect tax side, Hungary (27 percent), Iceland (25.5 percent), Sweden, Denmark, Norway and Croatia (25 percent) hold the title for the highest indirect tax rates.
Aruba has the smallest VAT, or turnover tax, at 1.5 percent, followed by a number of countries with a 5 percent VAT/GST including Japan, Canada, Yemen and Nigeria.