Governments seek to boost economies via indirect tax reforms
Kitty Miv, Editor
05 March, 2020
They say that a week is a long time in politics, and I would argue that this week has been an especially long one, in various regards! So, to take all of our minds off situations political, economic, and epidemiological, let's have a look at recent developments in the area of indirect tax.
There have been numerous developments in the area of VAT and indirect taxes this week, with Russia kicking things off with a bill tabled in the Duma proposing lowering the rate of value-added tax from 20 percent to 15 percent. However, this suggestion was put forward by the Fair Russia party, which holds just 23 seats in the 450-seat Duma. The party stated that the five percent cut would likely be almost revenue-neutral within three years of implementation, given the consequent boost to the economy and consumption.
The Russian Government is thought to be unlikely to back the proposal. The VAT rate was increased from 18 percent to 20 percent from January 1, 2019, and the Government in November 2019 ruled out a potential cut to the rate (with predictions that the higher VAT rate may generate an additional RUB2 trillion (USD30.6bn) in revenue over the next three years no doubt coming into play in the decision-making process.)
Then, towards the end of the month, the European Union announced that it had finalized regulations to complete the legislative framework for e-commerce reforms that will be implemented from 2021.
A new Regulation provides details for registration in the VAT One Stop Shop, including the Import One Stop Shop, and for the VAT One Stop Shop return.
Under plans initially approved by the Economic and Financial Affairs Council in November 2017, the EU will extend the existing mini one-stop shop (MOSS) from January 1, 2021.
MOSS was introduced alongside reforms in January 1, 2015, to simplify VAT compliance for firms that faced new rules obligating them to collect VAT on business-to-consumer (B2C) supplies of broadcasting, telecommunications, and electronic (BTE) services based on the location of the consumer, rather than the supplier.
MOSS is to be expanded from 2021 into a "One Stop Shop" (OSS), which will cover:
- All B2C supplies of services, including by non-EU businesses;
- Intra-EU distance sales of goods; and
- Distance sales of goods imported from third countries and third territories in consignments of an intrinsic value of a maximum of EUR150 (USD166).
Specifically, the one-stop shop will relieve online traders of having to register for VAT in each of the member states in which they sell covered goods or services, in the same way as the current mini One Stop Shop simplifies compliance for those that provide B2C supplies of BTE services.
In China, meanwhile, in order to support small businesses amid the outbreak of the COVID-19 virus, the Chinese Government has announced significant VAT assistance in relation to the supplies of small-scale taxpayers.
In Announcement No. 13 of 2020, published on February 28, 2020, the Chinese Ministry of Finance stated that small-scale taxpayers that levy a three percent rate of value-added tax on their supplies and are precluded from the ability to claim input tax credits may charge instead a concessionary one percent of VAT during the period March 1 and May 31, 2020.
Small-scale businesses in Hubei Province, where COVID-19 originated, are exempt from the requirement to charge three percent VAT.
The South Korean authorities also announced a number of tax relief measures in order to buoy the economy, with KRW7 trillion (USD5.9bn) of the recently unveiled KRW20 trillion stimulus package containing tax measures.
Landlords will be given a 50 percent tax credit if they agree to discount their commercial rents for affected businesses, and consumption taxes will be reduced by 70 percent for car purchases to boost consumption, the Government said.
The government has also said that it will provide value-added tax relief for businesses with annual turnover of less than KRW60m although it has not, as yet, disclosed further details on this.
Until next week!
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