Business Finance: Don’t neglect indirect tax, warns James Prince

James Prince, KPMG

James Prince, KPMG - Credit: Archant

VAT, Goods and Services Tax (GST), Sales, Consumption –whatever you call them, “indirect” taxes are here to stay.

Across the globe more jurisdictions continue to adopt them, the scope of many already in place is continuing to broaden, and world-wide rates will continue to increase, and yet many businesses still view the effectiveness of their tax department through the lens of just corporate tax, with very little dedicated resources being focused on VAT/GST.

Global research for the third annual edition of KPMG’s Benchmark Survey on VAT/GST shows that even the biggest businesses are not still prepared to deal with the people, process and technology needs that are essential to indirect taxes. The survey shows that 64% of the 249 tax executive respondents do not have a global head of VAT/GST, although where they do have a global head the UK is the most popular location for them, 37% being based here, followed by 17% in Germany, 12% in the US and 6% in Switzerland. Additionally, the respondents are responsible for accomplishing more with less. In 2013, they have fewer full-time VAT/GST employees (21% in 2013 versus 26% in 2012).

But it isn’t just the big companies that are missing the significant opportunities to manage risk, improve cash flow and reduce costs by avoiding incurring penalties and fines for compliance errors. Many firms continue to view the effectiveness of their tax department through the lens of corporate tax with insufficient focus on VAT/GST.

Now, with increasing government focus on taxes calculated on consumption rather than profits, all management teams should consider how their businesses are managing this real-time tax. Having a clear understanding of who is accountable for VAT/GST in a business is the starting point for effective VAT/GST management.

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Businesses owners, finance directors and heads of tax are managing a heavy burden of tax risks, from regulation and compliance to issues such as tax transparency and morality. However, business should recognise that governments are taking an increasingly aggressive stance to the collection of indirect taxes that are so important to fiscal budgets.

VAT/GST is often the third largest cash throughput managed by business after sales and cost of sales. Focus and investment will enable businesses to better comply with the requirement to collect these taxes and manage the risk around incurring penalties more effectively, improve cash flow and thus reduce bottom-line cost.

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To view a copy of the 2013 Benchmark Survey on VAT/GST, visit

: : James Prince is indirect tax director at KPMG in East Anglia.

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