KPMG Tax Rate Survey 2007
This survey provides a useful summary of corporate and indirect tax rates around the world. The survey has been run every year since 1993. It now covers 92 countries, including all member countries of the OECD and EU, 19 countries in the Asia-Pacific region and 19 Latin American countries. It compares corporate tax rates each January back to 1993, thus providing a 15 year record. For the first time, the survey also includes information on VAT, Goods and Services Taxes (‘GST’) and similar turnover taxes which we will refer to collectively as VAT.
Key Findings
Competition between countries to attract and retain foreign investment is continuing to drive down corporate tax rates across the world. Meanwhile, VAT appears to be playing an increasingly important role in the revenue-gathering strategies of many countries. If this trend takes hold, it will have major implications for companies, their tax strategies, resources and their accounting systems.
It is difficult to draw definitive conclusions from a review of headline VAT rates due to the prevalence of special rates and exceptions which many countries apply to VAT regimes. To date, VAT rates have generally remained steady and, in Europe, the focus has been more towards modernisation of VAT. However, with falling corporate tax rates, VAT is becoming steadily more important as a source of revenue.
Following the Irish model?
On the corporate tax side, the survey shows that corporate tax rates worldwide continue to fall. Although Ireland continues to have one of the lowest rates in developed countries, more and more countries seem to be following Ireland’s lead in this regard. In particular, many of the newer EU Member States have taken significant strides, for example, Bulgaria’s corporate tax rate is only 10% and Poland has halved its rate from 38% to 19% in the last 10 years. Hungary, Lithuania, Latvia, Romania and the Slovak Republic also have rates well below the EU average of 24% and the global average rate of 26.8%. These average rates compare with an EU and global average rate of 38% fifteen years ago.
There are signs that the rate of decline is slowing, or has at least paused. Last years reduction by 0.4% is significantly less than the major year-on-year reductions that we saw in the late 1990’s and early 2000’s. The overall EU average is considerably lower than that of Asia Pacific (just over 30%) and Latin America (28%). Conversely, the average VAT rate in the EU is higher at 19.5% than the average in Asia/Pacific (10.8%) or in Latin America (14.2%).
Ireland, with one of the lowest corporate tax rates, has among the higher VAT rates in the EU, in joint fifth position with Belgium and Portugal.
Irish experience of low corporate tax rates has been remarkably positive. Economic growth was generated and supported by the reduction in rates which resulted in total tax revenue as a percentage of Gross Domestic Product continuing to rise. This rise was heavily dependent on capital taxes from the property sector including capital gains tax and stamp duty, with top rates of stamp duty higher than they were 20 years ago.
Tax revenue from the property sector has slowed in recent times and, if this continues, the government may need to look to other sources. On the face of it, increases in the VAT rate may seem like a means of compensating for lost revenue from direct tax but the inflationary impact is likely to make this a difficult road.
Trends for the future?
In Europe, corporate tax competition still seems to be influencing policy makers with rate reductions planned or under consideration in the UK, Germany and Spain. Given the international competition we now face, both in the EU and elsewhere, Ireland will have to renew and enhance its focus on attracting and retaining inward investment to maintain growth levels and to expand the tax base. Reliance solely on growth generated by existing investment is unlikely to be adequate. For copies of the report, contact: taxmonitor@ kpmg.ie |
