Across the globe counties are introducing VAT rate reductions and granting filing and payment extensions to help with the current economic climate.
This week, we caught up with Richard Asquith, VP of Global Indirect Tax at Avalara, to talk about tax relief measures and what the future of indirect tax might look like.
1) What changes do you think we’ll see for indirect tax, coming out of this crisis?
We will see a sharp rise in VAT/GST rates at the end of the year/ beginning of 2021. Governments will need to start paying down the colossal deficits they are building up. In Europe, we may be headed towards 25% VAT compared to today’s average 22%.
2) Have you seen much cooperation between EU countries in coordinating measures?
It’s been limited and disappointing so far. It is challenging for businesses to track. But the OECD is certainly taking a more prominent lead on this now. They seem to be influencing countries on some of the less desirable measures, which is highly useful.
3) What do you think this will mean for planned upcoming changes to VAT globally?
Sensibly, countries are pushing back major reforms. Or at least not enforcing it – which is probably the better route as some businesses are ready to go.
4) Is it likely to have any impact on the BREXIT timeline and its implication for VAT?
The Brexit transition negotiations were always going to be ambitious. But COVID has crushed the negotiating timetable. Negotiating teams and supporting civil servants are not available to make much progress. More importantly, most businesses are facing an existential crisis with COVID. It would seem perverse to put them through the UK exiting the Customs Union, Single Market and EU VAT regime. Despite both sides saying that they are still on track, we should wait for the June high level review. That’s the opportunity for both sides to consider the effects of COVID, and if they should agree on a delay.
5) You have talked previously about VAT loans. Can you tell us a little more about these and how they can help in the current climate?
VAT loans are the new popular measure. It involves an optional refund of VAT already paid over to the tax authorities. It is repayable, with no or limited interest. Governments like it because it by-passes some of the difficulties of extending crisis loans to business through the regular banking system. It has been adopted in the US, and now appearing in Europe – Finland is first.
6) Do you think governments will offer VAT relief on bad debts?
They need to loosen the existing rules, yes. There is a huge liquidity and bad debt problem brewing in the economy, so this needs better terms. It should be quicker for companies to recover VAT on bad debts, and less auditing.
7) Have you seen any bad/risky measures that have been implemented?
Short term VAT cuts are the most unhelpful. They are confusing, and hard to implement quickly. They are traditionally used to boost consumption; but it is businesses that need support. So not the right measure.
8) What measures would you have put in place?
- Support for consumers, such as VAT vouchers for use in shops. Japan uses this system. It reduces the regressive tendencies of VAT
- Reduce paper-based invoice reliance. Nobody is in the office to open the letters!
- Deferred VAT payments
- Bad debt relief
Do you have any questions for Richard? If so, join the conversation here