Introduction of VAT/GST exposes pitfalls for the underprepared
As countries jockey for investment dollars, recent years have witnessed the widespread adoption of indirect tax regimes, both VAT and GST. The lower corporate tax rates and tax incentives speak to an appetite for investment-friendly revenue streams to fund growth and development.
If you’re an Australian mid-size business currently trading overseas, have overseas subsidiaries or are thinking of expansion, our series on indirect tax will be relevant. In the following piece – ‘Let’s be clear: indirect tax is a business issue’ – we look at the not-insignificant business issues arising from the introduction of VAT/GST in countries or subsidiaries you transact with and how to negotiate the shift.
Indirect tax liabilities represent a minefield for the unwary, and it’s important to develop a clear overview of where you’re liable; what your obligations are and how these intersect across your supply and sales chains. Preparation is the key, together with an understanding of the issues that can arise; the liabilities and pitfalls, and a realistic assessment of resource demands.
Questions to ask include:
- Are you monitoring the tax coding of your sales and purchases, given the recent GST implementation projects across the APAC region?
- Do your overseas operations include foreign permanent establishments with foreign tax liabilities under present or coming tax law, particularly with the proposed offshore digital services/‘Netflix’ tax ?
- Are your overseas companies managing cash flows associated with indirect tax liabilities, given recent difficulties with accessing tax refunds in some jurisdictions?
- Are you aware of the significant reputational risk, not to mention fines and charges, that seemingly small errors in a GST/VAT adjustment could attract?
Other key issues to consider are:
- Understanding the relevant legislation and also what local revenue authorities are demanding
- Clarifying your exposures and ensuring you’ve documented a detailed indirect tax analysis of your supply chain
- Acknowledging the operational and project management demands, from coding expenses, to reviewing contracts and renewing or updating import/export licences for GST change projects
- Ensuring adequate buy-in, including from board and management; tax teams; accounting and finance teams, and IT teams
Should you have queries or comments on the issues raised here or in the article following, Grant Thornton’s indirect tax specialists are available.