Back from Asia

I spend a couple of weeks in Asia for work and play.

It has been an usually newsworthy summer from a VAT / GST perspective: firms have been publishing mumblings about Brexit (will be a VAT pain for UK businesses, for non-UK businesses the VAT impact will be totally manageable), India (they made another step towards a ‘federal’ GST, but major roadblocks remain – consensus seems to be that India GST will remain a mess) and some developments with extended electronic filings (SAF-T).

More to come soon!


The Marina Bay Sands resort and the Singapore ArtScience Museum

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“The mother of all economic reforms in India”

This week India took a big leap towards the introduction of a federal Goods and Services Tax.

The New York Times writes:

“Technically, the parliamentary vote on Wednesday approved only a constitutional amendment on the new tax system, the first of many steps needed to enact the tax measure, usually referred to by its initials, G.S.T. The constitutional amendment must also be approved by a majority of India’s state legislatures and by the president. Once it is approved, which is expected, Parliament must enact legislation to create the new tax system, and individual states must pass their own laws.”

So the federal GST legislation will be very similar in its workings to the EU VAT Directive: the federal government sets the umbrella legal structure and it will be up to the various states to write the actual GST legislation that the state government and registered businesses should use.

The introduction creates a significant risk of inflation, and therefore the government wants to tread lightly on the question of the GST rates, which has not been settled yet.

Avalara writes:

“Some of the major features of Indian GST include:

  • Based on OECD and EU recommended principles
  • It helps create the world’s largest ‘single market’
  • It is charged on the final consumer at the location (State) of consumption – the destination concept
  • It reduces fraud by charging GST throughout the production chain, although businesses can recover it via their returns to ensure no costs to them
  • Like Canada, the regime has two levels: Center (CGST) and State (SGST) which are combined as Integrated GST (IGST)
  • Over 7 million business have to register, charge and file monthly GST returns
  • There is a GST registration threshold of INR 9 lakhs
  • It is levied on most goods and services
  • There are exemptions or reductions for key services, including: basic foodstuffs: public services: healthcare: education; and financial services”

Implementation is expected at some point in 2018, if not later.

As always, let me know if you would like to discuss the impact on your business.

See for the New York Times article here:

http://www.nytimes.com/2016/08/04/world/asia/india-goods-and-services-tax.html

And Avalara has more here:

India approves GST

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Yet another “VAT in the U.S.” attempt

Another proposal for U.S. tax reform has been launched – this time it comes down to abolition of corporate income tax, simplification of personal income tax and a VAT (a “credit-invoice based consumption tax”) at a rate of 7% to somewhat make up for the revenue loss.

The Tax Foundation provided a detailed analysis of the plan and concludes:

“Rep. Jim Renacci’s tax plan would reform the individual income tax and replace the corporate income tax with a credit-invoice value-added tax. If enacted, his plan would reduce federal revenues by $845 billion over the next decade. The Renacci plan would significantly reduce marginal tax rates on capital and labor income, which would result in a substantial increase of the size of the U.S. economy in the long run. This would increase the revenue that the tax plan would ultimately collect, making the plan slightly revenue positive. Rep. Renacci’s plan would increase after-tax incomes for taxpayers at all income levels.”

See more here:

http://taxfoundation.org/article/details-and-analysis-rep-jim-renacci-s-tax-reform-proposal

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Hamilton and customs duties

Avalara’s Amy Morgan is a leading customs talent – she is really good at explaining complex global supply chain issues in simple and practical terms. Inspired by the musical, she reports on Hamilton and international trade issues.

Amy writes:

“Whether you’re a small business just starting to export, a large company who imports goods from other countries, or somewhere in between, the next time you find yourself struggling with a stuck-in-customs issue or cursing the calculation of import duties, understand that there’s a bigger picture — one that goes back not just to the American Revolution and Alexander Hamilton, but to the foundations of currency and trade itself.”

Definitely worth your time:

https://www.avalara.com/blog/2016/07/12/hamilton-gives-context-customs-duty/

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Brexit date: January 1, 2019

So it seems that the Brexit is inescapable – the new prime minister indicated as much, and the new International Trade Secretary is on it. The US, Canada and Australia will soon start negotiations for free-trade agreements, and all that is left is to whip Scotland into the UK fray. Without Scotland’s agreement, the new UK government will not send “The Letter” – the indication to the other EU member states that the UK is leaving the Union.

After receipt of The Letter, the UK must leave the European Union within two years. If the target date is now January 1, 2019, The Letter must be sent before December 31, 2016.

This leaves UK VAT registered businesses with more than two years of prep time – should be plenty, but now is a good time to start the conversation with your VAT consultants.

Richard Cornelisse summarized the main talking points here: http://globalindirecttaxmanagement.com/63-brexit-time-to-act.html

See here for more on Brexit: https://www.yahoo.com/news/britain-eyes-trade-deals-brexit-early-2019-130105780.html

 

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In Qatar on July 25

I will be on a stopover in Qatar, on my way to Singapore on July 25. Let me know if you want to discuss the upcoming introduction of VAT in the region over coffee!

KPMG provided an update on the VAT developments there, see below:

Download (PDF, 2.81MB)

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EU – Canada trade deal – UK next?

Commenters were falling over each other in the days after the Brexit vote, struggling to answer the question “Now what?”. For VAT, it all seems fairly clear cut for as far as we can see, at least for international traders.

One thing that will remain unclear for some time to come is whether the UK will not only leave the European Union, but also the European Economic Area (EEA), which is basically a free trade zone between all EU members and countries like Iceland and Norway. Turkey might be a member of the EEA soon.

The EEA is all about free movement of goods, services and people, and particularly the “people” part may be a challenge for the UK – think immigration and refugees. So it makes sense to consider a separate EU – UK free trade agreement.

Earlier this week the EU announced the signing of a “Comprehensive Economic and Trade Agreement” (“CETA”) with Canada. A couple of highlights of the agreement are:

  • almost no customs duties
  • recognition of each others goods testing / conformity certificates / rights to food and drink products
  • access to public tenders
  • protection of labor rights and the environment

Levying import VAT (or GST/PST) will remain unchanged between the two parties, which is fine – the system works great and, like the EU, Canada is working on a import GST deferment system.

This EU – Canadian agreement looks like an excellent blueprint for a potential EU – UK CETA – have a look here if you want to make sure that your company or your clients are prepared: http://europa.eu/rapid/press-release_IP-16-2371_en.htm

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