New KPMG International VAT/GST Benchmark Survey

Despite the strong global shift towards indirect tax, the VAT/GST function remains under-measured and under-managed in most organizations, shows new KPMG International VAT/GST Benchmark Survey

MOSCOW, March, 23, 2011 – KPMG, the global network of professional service firms providing Audit, Tax and Advisory services, today has published the results of new KPMG International VAT/GST Benchmark Survey.

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 organizations.

"Before now, no one had studied tax function development trends with regard to indirect tax," says Vitaly Yanovskiy, Head of Indirect Tax at KPMG in Russia. "At the same time, the fact that up to 30% of a company's working capital can be tied up in indirect tax shows that the cash flows associated with these taxes need to be managed. The cause of low indirect tax turnover is typically hidden in the company's internal processes, which are often ineffective. And this is confirmed by the results of our research. However, our experience shows that managing such flows is entirely realistic."

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 percent 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 percent 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 organizations (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 organizations surveyed (USD20bn + turnover), 50 percent did not have a global head of VAT/GST. Furthermore, 75 percent of respondents say they have 10 or less full-time VAT/GST specialists employed globally and just fewer than 10 percent have 40 or more.

In terms of accountability for VAT/GST, the picture is not clear – 12 percent 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 percent in the ASAPC and LATAM regions. Only 9 percent of respondents rate their policies as excellent.

"The number and complexity of the issues faced by major international companies today are growing all the time. At the same time, our results indicate that organizations clearly lack the resources and procedures to effectively resolve issues that arise and to manage indirect tax payment flows. It appears that companies' investment in indirect tax work is not matching their need for global reform in this area, and this is creating serious risks for business," said Vitaly Yanovskiy.

About the survey

The KPMG International Benchmark Survey on VAT/GST will be conducted on an annual basis to track the evolution of indirect tax benchmarks globally. For the current survey, there were 124 respondents to the survey from 27 countries. Seventy-six percent of respondents have turnover in excess of USD1bn and at least 30 percent have turnover in excess of USD20bn.

Read the full text of the VAT/GST Benchmark Survey here