VAT AROUND THE WORLD International Seminar on Tax Reform Brasilia 4 March 2009 David Holmes Centre for Tax Policy, OECD Paris, France
France 1954 SPREAD OF VAT Brazil also an early country to adopt VAT Now a requirement for membership of EU Approx 145 countries including most of South America USA is only OECD country without VAT
VAT MODELS Credit Invoice system predominates Japan uses subtraction method EU model followed by most Australia, New Zealand, Canada, Korea, South Africa and a few others have modernised the EU model
INTERNATIONAL ISSUES Origin v Destination Destination universally accepted Removes distortions and double taxation Creates neutrality Applies equally to sub federal levels More difficult to administer (eg. EU)
FEDERAL ISSUES Most countries employ VAT at national level only Some exceptions Australia Canada India IRAP in Italy
AUSTRALIA VAT replaced many state level excises and other taxes Rate and base fixed by federal government Administered as a national VAT by the federal tax administration (ATO) All revenue collected returned to the states Agreed formulae determine amounts ATO deducts cost of administration
INDIA Still a work in progress Federal VAT due in 2010 Likely to run in tandem with state VATs Taxing services at state level will require constitutional amendment Too early to determine if the model will work well
ITALY National VAT in line with EU VAT legislation Revenue to central government IRAP National tax but proceeds to regions More like a subtraction VAT than a credit invoice VAT Regions have some control over rates and base Origin principle so competition problems
Federal GST 5% CANADA 1 Sub federal a mix of VAT, Retail Sales Taxes and no taxes VAT in Québec (QST) VAT in 3 smaller Provinces (Harmonised Sales Tax HST) Retail Sales Taxes (RST) in most other Provinces
CANADA 2 Québec has its VAT the QST Québec administers both federal GST and QST Minor differences in QST base as to GST base Two separate taxes Businesses must track two sets of outputs/inputs QST subject to Québec law only (not applicable outside Québec) Québec compensated by federal government
CANADA 3 HST is applied in 3 small Atlantic Provinces HST is legislated at federal level so applicable across Canada 8% uniform rate and base is same as federal no separate tracking required (unlike QST) Federal Government administers both federal GST and provincial HSTs HST revenues allocated to 3 Provinces on estimated taxable consumption
CANADA 4 Most other provinces apply Provincial Sales Taxes (PST) PST is not a VAT but a Retail Sales Tax (RST) Single stage tax applied primarily to goods (plus some services) similar to US Usually applied to the GST exclusive price Business inputs not always recoverable (40% of revenue comes from business purchases)
It seems to work CANADA 5 But requires a very strong administration at both federal and sub federal level Compliance burdens for businesses can be significant The mix of taxes at sub federal level makes it hard to recommend VAT/RST mix The HST model is preferred less compliance costs and no dual tracking
CONCLUSIONS Any federal/sub federal VAT/RST system will bring problems Australia solution is best but unlikely to be acceptable to states? Canada s HST looks next best but again, how acceptable to states? Work towards an HST but in stages?