SINGAPORE - Singapore came out tops in a latest study by UNSW Sydney and KPMG that considered the compliance requirements and administrative burden associated with adhering to Value Added Tax (VAT) and Goods and Services Tax (GST) rules.
Launched last September, the research concluded that 14 countries out of 47 jurisdictions around the world scored favourably with a compliance burden index of four or less, while 15 countries were rated with a score of six or more, suggesting the need for policy reforms in those locations to reduce the compliance burden for taxpayers and administrators.
On a scale of one to 10, one represents a VAT system with a very low, or minimal compliance burden. Singapore is the only country to take the top spot with a compliance burden index of two. Australia, Costa Rica, New Zealand and South Africa trailed closely behind with an index of three.
Utilising a VAT diagnostic tool, UNSW applied 27 indicators to assess the VAT compliance burden on taxpayers. These indicators included the use of multiple VAT rate structures, the ease of registering for VAT, the ability to deal electronically with tax authorities for registration, filing, payment and information services, as well as the speed of VAT returns, among others.
Collectively, these indicators reflect four factors that are perceived to be the main drivers of VAT compliance burden: tax law complexity, the number and frequency of administrative obligations, capabilities to support taxpayers, and monetary costs and benefits.
The study also suggests that governments can learn from jurisdictions where the compliance burden is rated more favourably, for instance by implementing technology solutions to help streamline processes, KPMG noted.
Said Lachlan Wolfers, global head of indirect taxes at KPMG International: "The findings highlight the importance not only of countries having the right VAT policies in place, but also the call to modernise the delivery of tax administration to support businesses in efficiently managing VAT compliance costs.
"Businesses are telling us that, as their compliance obligations are globalising through the digitalisation of business models, the ability to deal with tax authorities electronically in registering, invoicing and filing is becoming increasingly important."
In addition, the research team intends for the diagnostic tool to be used by governments and tax authorities globally to help them see variances, and identify best practices that can help improve compliance and reduce costs.
The diagnostic tool can be used to highlight the importance of best practice VAT policy settings to assist in managing compliance costs, with countries such as China and India both recently recognising the value in having fewer VAT rates, KPMG noted.
Added Mr Wolfers: "What will be fascinating is to see the results of this diagnostic tool in a few years' time as different technology initiatives play an increased role in both VAT collection and enforcement - measures such as real-time tax reporting, the increased use of data and analytics in managing compliance, and the deployment of blockchain technology."
Furthermore, initiatives such as Making Tax Digital (MTD) in the UK, Singapore's Assisted Compliance Assurance Program (ACAP), as well as electronic invoicing all support taxpayers in efficiently managing VAT compliance costs, while simultaneously enhancing the integrity of countries' tax systems, KPMG said in a press statement on Monday (July 1).
"Ultimately, a more efficient system means less need to devote resources and investment to administrative compliance processes, which can benefit not only businesses and tax administrators but also society at large," noted Chris Morgan, global head of tax policy at KPMG International.
The survey also shows that as a VAT regime grows older, the relative compliance burden tends to be higher, and that, from a macroeconomic perspective, the VAT compliance burden is generally higher in less developed countries.
Both higher levels of exports as a percentage of gross domestic product (GDP), as well as the higher the ratio of tax to GDP in a country, are also associated with a higher compliance burden, the study found.
Looking ahead, the research team highlighted that the diagnostic tool initially deployed to assess VAT compliance costs, may be expanded to cater for other business taxes as well.
Noted UNSW adjunct professor Richard Highfield: "The UNSW team considers that, at this stage, it has sufficient proof of concept to be able to undertake, in collaboration with stakeholders, the development of a broader suite of diagnostic tools designed to measure and evaluate the tax compliance burden of other business taxes, in particular, the corporate income tax, tax regimes applicable to the provision of labour, and customs duties and excises."