With consumption-based taxes becoming the tax of choice for managing austerity deficit levels - and with more major economies worldwide adopting this method of taxation - it is set to continue as a key revenue generator across global markets.
If we look at the OECD’s tracking of direct and indirect taxes, the global corporate tax rate (as a percentage of GDP) has almost halved from 46.6% (1980) to 26.5% (2018), whilst the VAT rate has shown significant gains. In 1977, only 25 countries had adopted VAT but, since 2019, this has surged to 168 countries.
According to the OECD, taxes on goods and services - which include general consumption taxes, VAT and other specific consumption taxes currently account for a huge 33% of total global tax revenue. With ongoing talks regarding a ‘digital tax’, paired with the suggestion of various ecotaxes to tackle ongoing environmental issues, the future appears to be in the hands of the indirect taxes.
The indirect tax market tends to thrive on political and economic uncertainty, which increases the need for specialists in both professional services and in-house tax functions. For example, off the back of ongoing trade wars, 2019 became a defining year for Customs & Global trade recruitment. Alongside this, with Brexit and digital tax obligations steering the agenda for tax functions, the volume of appointments remained high.
How has the Financial Services sector been affected?
In the last decade for financial services, the level of corporate taxes has slowed down and there is growing speculation that VAT will become the standard method of taxation. Nevertheless, there will very likely be new complexities that will drive the demand for new skills in the industry.
Ultimately, the features of financial services are fundamentally changing. The verticals within the sector are no longer a clear line between products or services of traditional banks, insurers and asset managers. Instead, we are seeing ‘new economy’ entrants to the market offering more sophisticated FinTech, peer-to-peer (P2P) lending, payment processors, and of course, cryptocurrency. Take for example the rapidly evolving digital economy - enhanced again last year with Facebook’s attempt to launch ‘Libra’ - which epitomises the pace of change (and thus reinforcing why indirect tax professionals will need to sharpen their tools when approaching financial services). And, with the application of VAT or GST looking to be applied to these digital products and services, we can expect to experience an increased demand for indirect tax skills.
The 'Death of the VAT Return'
Where one traditional process of compliance and reporting falls into decay, it marks the genesis of a digitalised landscape of tax.
With fraudsters causing financial headaches for tax authorities (VAT revenue gaps hitting around €150 billion per annum) and the lengthy VAT return process being discouraging for businesses, it is no surprise that automation has become a priority.
Live digital transaction reporting has been sweeping through Europe and the rest of the world gradually for several years now, but 2019 certainly saw it garner the most attention. With advanced systems in place across LATAM, India’s introduction of e-invoicing for GST, Poland scrapping VAT returns, and the UK’s introduction of MTD, this growing list of live invoicing advocates has meant that the role of VAT compliance is now in a state of transition.
Whilst technology renders a core feature of the VAT compliance specialist’s role redundant, it shifts the skill set of one’s ability to secure ‘clean data’ and translate information to both the authorities and wider business. So whilst the rise in technology eradicates burdensome processes through automation, it has created a calling for ERP, e-filing, and data analysts.
With the sweeping popularity of consumption taxes, and all the above considered, it is clear that we are at a moment of significant opportunity for indirect tax professionals around the world. Whether it be digital companies invading the financial services sector, or the automation of VAT compliance processes, we have started - and will continue - to see a sizable increase in the volume and variety of indirect tax vacancies. ‘Variety’ is the underlying message here and reinforces the notion that one must proactively adapt and acquire new skills.
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