VAT news round-up: 5 May 2015

What’s happening in the world of VAT? Our Global Managing Editor gives her daily round-up.

Greece

Talks are underway between Greece and its lenders, the Brussels Group representing the Eurozone, the IMF and the European Central Bank. Prime Minister Alexis Tsipras’s new government has only been in place for three months, but is under heavy pressure at home and abroad to reach an agreement with European and IMF lenders to avert a national bankruptcy. A recent poll showed more than three-quarters of Greeks feel Athens must strike a deal at any cost to stay in the euro. Greece wants an interim deal immediately, hoping this will allow the ECB to ease liquidity restrictions before a 750m euro payment to the IMF falls due on 12 May. Before that, the country also has to repay 200m euros to the IMF by 6 May.

Elected on promises to end austerity and scrap an unpopular EU/IMF bailout programme, Tsipras had so far refused to give ground on his “red lines” of pensions, labour reform and state asset sales. Some officials say Athens could consider a flat VAT rate on all goods and services except drugs, foods and books and could adjust supplementary pension payouts. Talk still surrounds the “Grexit”, and until the lenders are satisfied it is unlikely that talk will go away. Source.  

Meanwhile, Greece’s tourism chief has appealed to the millions of tourists planning to visit the country this year to use credit cards as much as possible, with Athens signalling a plan to raise VAT rates on some holiday islands. Andreas Andreadis believes plastic could play a key role in hindering tax evasion, which is a perennial drain on the embattled Greek economy, as it forces services and shops to declare it on the cash register and issue receipts. Source.  

Vietnam

Automatic teller machines (ATMs) are currently exempt from VAT in Vietnam, but tax agencies are taking steps to impose VAT on their usage, as well as to fine banks for non-payment. An official of a bank in Ho Chi Minh City said ATM operations provide payment services for clients and funds on deposit have already been assessed for VAT. But tax agencies say ATMs are used to obtain credit, through the use of credit cards, which constitutes a loan from the bank and therefore attracts VAT. If successful, it could see ATM users facing increased charges. Experts, though, say it would be more rational for tax agencies to levy the VAT on credit card transactions rather than all ATM users as any increase in service fees is in conflict with the government’s policy to encourage citizens towards non-cash transactions. 

Hungary

The Hungarian government is exploring a 5.3% rate for the advertising tax on a tax base over 100m forints (EUR 330,000), with a zero per cent rate applied to a tax base up to 100m forints. The bill would also lower the rate applied to taxable parties that order publication of advertising to 5% (currently 20%).  
It’s all in a draft bill posted on the government’s official website. If approved, the legislation would come into force 31 days after publication. Revenue from the ad tax is targeted at 6.6bn forints in this year’s Budget. Source.  

Sweden

The finance sector is under scrutiny in Sweden, with the new Social Democratic government seeking revenue via a financial activity tax in order to push down Scandinavia’s highest unemployment rate. The plan was revealed at a May Day speech in Stockholm by Finance Minister Magdalena Andersson, who said the government will start an evaluation this week on a financial activity tax rather than a transaction tax. She claimed the Swedish financial sector is undertaxed, with institutions paying no VAT. If successful, the tax would be introduced at some point during this term, which ends in 2018. Source

EU

The European Commission (EC) is investigating the peer-to-peer sector, and is considering whether crowdfunding should attract VAT. One of the main questions raised is whether crowdfunding should be defined as a financial service under the EU VAT Directive. Last week this question was passed to the EU VAT Committee, which reviews and promotes the uniform application of the provisions of VAT Directives across the 28 member states of the EU. They are paying particular attention to “reward crowdfunding”, where members of the public are offered goods or services in return for their investment. Source

The EU will also outline its digital strategy on Wednesday in a bid to make European companies more competitive online, and to simplify online shopping and movie streaming across borders. A major concern for the EC is the growing power of US tech companies providing search, app store, ecommerce and social media platforms on which many online business reply. The EC has promised a “comprehensive assessment” of the role of such platforms. Source.  

Czech Republic

The Czech Cabinet has approved its National Reform Program for 2015, placing emphasis on increasing tax collections. The Program sets out key measures for stimulating economic growth and employment, with a number of investment projects outlined. It also includes measures to improve tax compliance, particularly VAT compliance. New VAT reporting requirements are planned to help verify declaration, as well as new rules that will require businesses to keep electronic records of sales. Source

Benelux

The Prime Ministers of Belgium, the Netherlands and Luxembourg have agreed an “Action Plan for Employment and Growth” following a tripartite meeting last week. The Plan focuses on strengthening the internal market in the EU and reducing barriers to trade, building upon a statement in march where the Luxembourg government urged member states to remove barriers to trade in electronic services and make the treatment of the digital economy an integral part of all ongoing tax discussions.

The Benelux nations noted that their cooperation in these areas so far has helped to strengthen the internal market of 28 million consumers and has provided businesses with a firm base from which to launch into the European and world markets. They now wish to extend this cooperation further to promote ecommerce and the digital agenda, improve VAT standardisation and reinforce cross-border exchange of information. Source

Thailand

The Thai Finance Ministry is expecting a shortfall in the country’s tax revenue for 2015, but is considering it a success as that shortfall is lower than projected. The Revenue Department had previously forecast a shortfall of 160-200bn baht, or 8-10% lower than the revenue target of 1.96 trillion. Four months into 2015, they now believe that shortfall will only be 5-6%. 

The adjustment to a more optimistic outlook is buoyed by a 23.5% rise in first quarter tourism, and its flow-on boost to VAT revenue. However, the sharp decline in oil prices is forecast to trim excise tax revenue by 40bn baht and VAT revenue from retail petrol by 60bn baht. Corporate tax receipts will be hit as well. 

Tax avoidance is in the spotlight in Thailand, with the traditional avoidance areas of flea markets and fresh markets, where most operators shirk the tax system, falling under particular scrutiny. The IMF has previously reported that Thailand experienced as much as 14% VAT avoidance compared with Eurozone countries. 

Thai Finance Minister Sommai Phasee has demanded a 10% increase in revenue from normal tax item collections this year. Source.  

UK

Campaigners have called for an emergency concession to rescue small business from European VAT rules. The call by EU VAT Action comes as the HMRC warned hundreds of firms that they had failed to make correct VAT payments. In January, new legislation required firms selling digital products, from ebooks to music files, to charge tax at the national rate, wherever the buyer lives. It has forced many to stop exporting to Europe, campaigners claim. Source

Elsewhere, research shows some 36% of UK SMEs are unaware of the VAT registration threshold, putting them at risk of breaking the rules. It also found that 9% of UK SMEs, while aware of the threshold, limit sales in order to remain under it. Source.  

India

India’s finance ministry will hold talks with state governments to fix a moderate GST rate of 16-18% even as the government’s lower house deliberates the controversial constitution amendment bill on the proposed revenue regime this week. Some state finance ministers had suggested a revenue-neutral rate of 25-27% as GST, but officials say such a high rate would raise prices, kill industry and shrink the economy, besides leading to high levels of tax avoidance.
"The whole idea of GST is to have a reasonable rate to encourage trade and industry and not to slap a high rate," said top officials. Finance minister Arun Jaitley is trying to get the states to see reason in accepting GST and a lower tax rate. Source

CEE

Finance ministers from five central and eastern European countries have joined together to demand more power from the EU to crack down on VAT fraud – an act they believe is costing them billions. Ministers from Austria, the Czech Republic, Slovakia, Hungary and Bulgaria held a news conference  yesterday to announce their requet to the EC to change a VAT system that Austria’s Hans Joerg Schelling said was “ineffective and had to be changed”. Czech Finance Minister Andrej Babis said VAT fraud costs EU members around EUR 50bn each year. In these cases, goods are typically imported VAT-free from other countries then charged VAT when they sell goods to domestic buyers. The sellers then vanish without paying VAT to the state. Source

Cyprus

The Cypriot government has admitted to difficulties in collecting social security contributions and VAT from employers, with the number of employers going on a deferral payment plan rising. Between 2012 and 2014, the state has gone after EUR 140m but managed to collect only EUR17.3m. Opposition parties call for new legislation so that state authorities can collect accumulated overdue taxes more easily.

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