What was the GST for other states

From the triumphant advance of VAT

Dato ’Sri Subromaniam Tholasy, Director Generaldes of the Royal Malaysian Customs Department says companies should prepare for new VAT and GST systems early on.

"One of the biggest problems was that some companies had not prepared in good time through training and system tests," says Subromaniam Tholasy.

“Some companies left the implementation to the finance and accounting departments alone. However, this is nowhere near enough. The sales and marketing departments should also involve companies, as new contracts may have to be negotiated, for example. In our experience, small and medium-sized companies in particular wait until the last second and then have problems filing their tax returns. "

What did we learn from it?

An effective VAT and GST system should be broad and have a long-term perspective. Many jurisdictions have learned the hard way because their first sales and GST systems exempted too many products or entire industries from tax, which was later difficult to correct.

The task becomes even more difficult when several countries in one jurisdiction have to agree to a change in tax legislation, as is the case in the EU.

"Change is particularly difficult in the European Union because all countries have to agree," said Christopher Heady, professor of economics at the University of Kent in the UK and former head of the OECD's tax policy and statistics department.

"Somehow many people don't think that's right, but neither are they very optimistic that a lot can be changed about it."

Even so, the EU VAT system is evolving in other ways. "There are a lot of debates in the EU about VAT issues such as certain VAT obligations for deliveries of services, the distance selling of goods and a system for intra-community deliveries of goods between taxpayers," said Jenny Netterström, Business Developer at the Swedish tax authority Skatteverket.

Since the abolition of exemptions is often difficult or impossible, the legal systems often shift to increasing the tax rate instead. Since the beginning of the financial crisis in 2008, VAT and GST rates have risen rapidly around the world. In Hungary, the standard rate has now reached 27 percent. However, this development is now on the decline again, the economic framework conditions have improved, so that some countries are already lowering the standard rate again.

According to Heady, countries planning to introduce a new VAT and GST system should learn from this that there should be as few exceptions and as low rates as possible in the beginning.

"Some countries have succeeded in implementing a broad-based tax in the sense of a modern value added tax," said Schenk. "This approach was first followed in New Zealand (1986) and later (1991) implemented by Canada and a number of other new sales taxes worldwide," he explains.

Another lesson that some countries had to learn: According to Heady, a list of certain taxable goods should be avoided as much as possible and uniform rates should be preferred. Otherwise, the question of how to tax certain new products or services would be extremely controversial.

"In the UK, most food and many beverages are not taxed, but the standard VAT rate applies to soft drinks," said Heady. “For example, there has been controversy about whether a smoothie is actually a food or a soft drink. How much fruit does it have to contain so that the smoothie is a food and not a soft drink? "

Immediate information

The requirements for compliance and administration of VAT and GST are being digitalized more and more, from the collection of tax data to auditing and investigation processes. Most tax authorities already require electronic registration of sales and excise taxes, and more and more electronic invoices (e-invoicing) are permitted or even required for VAT and excise tax accounting.

Electronic invoices are also a useful tool because the costs of creating and processing them are usually considerably lower than for printed invoices. Electronic invoices can also be a useful source of data for tax authorities and support a transparent audit trail.

In 2015, Sweden and other EU member states introduced a new program for reporting and paying VAT under the name “VAT Mini One Stop Shop (VAT MOSS)”. VAT MOSS is intended to facilitate compliance with legal requirements through administrative relief.

Suppliers can register online there, register their sales tax and transfer it to an individual member state. “This is one of the first tax systems in Sweden where officers work in a fully digital environment and only communicate via email,” explains Netterström.

In more and more countries such as Brazil and China, taxpayers are now transmitting detailed transaction data directly to the tax authorities. The tax authorities are increasingly demanding that data be transmitted in real time or almost in real time.

Since July 2017, Spain has been a pioneer of near-real-time reporting. According to Rufino de la Rosa, the director of the Spanish finance department, the process is going well.

“Thanks to the program for immediate data transmission (Immediate Submission of Information [ISI]), we immediately receive information about the invoicing that has been carried out. This enables us to control how the transactions actually develop. This in turn enables us, on the one hand, to improve our service and, on the other hand, strengthens our control measures, ”says Dela Rosa.

He reports that despite initial concerns, all sectors of the economy are committed to complying with the new regulations, although some have struggled with it, such as non-resident vendors and multinational corporations whose decisions are made at the corporate level.

Even in these cases, however, the companies managed to “comply with the regulations, while they could rely on the support of the tax authorities in the event of ambiguities regarding implementation and clarification of questions,” praised de la Rosa.

The next milestone, according to de la Rosa, is the granting of access to the information provided by a company's customers and suppliers. "In 2018 we developed a user-friendly environment in preparation for the creation of a draft VAT advance return, which enabled companies to view the VAT data they submitted to the ISI in aggregated form."