BRICS in trouble

Thu 24th Sep 2015

As emerging markets endure ongoing economic uncertainties, and the threat of a US interest rate rise which would redirect investment, VAT reforms have fallen out of favour.  The ‘BRICS’ (Brazil, Russia, India, China and South Africa) countries are enduring their own versions of this.


Brazil revives controversial indirect taxes

Brazil’s retreat into recession this last quarter has prompted the reintroduction of the CPMF tax to meet 2015 deficit targets. This levies a financial transactions tax on bank withdrawals. It was last levied 5 years ago with disappointing results.


Russia raises taxes as oil price plummets

Oil exporting Russia is feeling the pressure from the halving of crude world prices in the past year. This has put its economy into a sharp recession. It is now considering a range of new taxes and tax rate hikes.


India GST implementation slips

The reform-minded BJP government of premier Modi seems likely to miss its target of overhauling India’s byzantine VAT regime in 2016. India currently has a number of overlapping consumptions taxes, such as VAT, CENVAT and Serivces Tax, which lead to double taxation and a disincentive to manufacturers to trade across Indian internal state borders. To get the replacement and simplified Goods & Services Tax (GST) implemented, the BJP had to make many compromises with the States. But this has lost it support in parliament, and looks certain to push the introduction of GST into 2017 or even beyond.

The new GST regime had promised to inject up to 2% annual growth into the Indian economy.


China’s slowing delays VAT overhaul

China has proven remarkably determined to overhaul its antiquated Value Added Tax regime since 2012 – this includes the replacement of the turnover tax, Business Tax, with VAT.

However, the sharp slowing of its economy, which threatens the global economy, has meant that the next stages of VAT reform have been postponed till 2016. This would affect the retail and construction industries. Reform of VAT in the former is key to helping China ‘pivot’ from an export-driven model to internal consumption.


South Africa facing VAT rate rise

The least disappointment comes from South Africa. It’s VAT system is relatively modern, and clear. This included the implementation of VAT on foreign digital service providers in 2014.

However, it’s VAT rate at 14% remains below the African average of around 18%.

 



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