Key insights from benchmark global survey on VAT/GST

Around the world the shift towards indirect tax away from direct tax is clear. This is evidenced by increases in VAT/GST rates, the introduction of new indirect tax regimes and major reforms of existing tax systems. However, despite this significant shift in tax policy, a new benchmark survey from KPMG International shows that VAT/GST remains under-resourced, under-measured and under-managed in most organisations.

“Indirect tax performance can now be benchmarked globally based on real data obtained from over 100 global businesses,” says Niall Campbell, KPMG’s Global Head of Indirect Tax Services. “Something that has been missing, until now, is a set of benchmarks that provide valuable insights into how businesses are currently managing their VAT/GST obligations globally.”

The survey found that just fewer than 75 percent of respondents have no specific goals agreed to between the Head of Tax and the Head of VAT/GST to measure the efficiency and effectiveness of the VAT/GST.

Furthermore, over 65 per cent of businesses do not have a Global Head of VAT/GST. When then asked if the business has Regional Heads of VAT/GST, again over 65 per cent of respondents said that they do not. For those that do have Regional Heads, the significant majority covered the Europe, Middle East and Africa (EMEA) region – this is almost three times as many than are covered in the Asia Pacific (ASPAC) and Latin American (LATAM) regions.

Resourcing is a clear issue around the world. The survey showed that the majority of organisations (66 percent) do not have a global or regional head of VAT. Those that do are largely EU based with the UK, Germany and The Netherlands being the top three locations.

Even at the largest global organisations surveyed (US$ 20 b + turnover), 50 per cent did not have a global head of VAT/GST. Furthermore, 75 per cent of respondents say they have 10 or less full-time VAT/GST specialists employed globally and just fewer than 10 per cent have 40 or more.

In terms of accountability for VAT/GST, the picture is not clear – 12 per cent of respondents did not know who was accountable and the balance were broadly split between saying VAT/GST is a tax function responsibility to being a finance function responsibility. Larger businesses trended towards accountability for VAT/GST residing within the tax function.

The existence and quality of documented processes designed to manage VAT/GST across the entire business was limited. Only 40 percent have policies in the EMEA region and only 17 per cent in the ASAPC and LATAM regions. Only 9 percent of respondents rate their policies as excellent.

Campbell comments, “Given the scale of VAT/GST throughput being handled by multi-national organisations today, in many cases over US$ 5 b, there is clear evidence that organisations do not have sufficient resources or processes in place to manage the increasing complexity and scale of VAT/GST obligations globally. Investment in VAT/GST management by businesses does not appear to be keeping pace with the demands of global reforms, presenting a major business risk.”

Campbell continues, “It is essential that every organisation has a very clear idea of where it is headed in terms of its global VAT/GST management – what is the “end game” it is seeking to achieve? This end game should be challenging over the long term and take account of likely future changes and emerging best practices. However, it should also be broken down into smaller, bite size targets that can be achieved each year. As only the things that get measured are likely to improve, it is critical that all multinational businesses seriously consider what the most appropriate qualitative and quantitative measures are for their business, put in place a program of continuous improvement and demonstrate over time how real business value can be generated through better indirect tax management.”

The KPMG International Benchmark Survey on VAT/GST will be conducted on an annual basis to track the evolution of indirect tax benchmarks globally. KPMG’s Global Indirect Tax practice expects that this, and subsequent surveys, will help companies enhance performance through greater visibility and the setting of more challenging indirect tax performance goals.

For the current survey, there were 124 respondents to the survey from 27 countries. Seventy-six per cent of respondents have turnover in excess of US$ 1 b and at least 30 per cent have turnover in excess of US$ 20 b.