Australian Tax Forum

Articles from the current issue:

• GST/VAT general anti‑avoidance approaches: some preliminary findings from a comparative study of Australia and South Africa

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  The goods and services tax (GST) or value-added tax (VAT) is the most rapidly spreading tax in the world. It accounts for a high proportion of tax revenue in both developing and developed countries. Despite its importance, there is a paucity of studies concerning GST/VAT avoidance. This article attempts to contribute to this relatively small body of literature by comparing and evaluating GST/VAT general anti-avoidance approaches in Australia and South Africa. Both countries have a similar common law heritage and adopted a similar GST/VAT model, although the tax commenced at different times in each country and the two taxes have slightly different bases. An examination of the Australian and South African GST/VAT anti-avoidance approaches reveals some interesting findings. The analysis undertaken by the authors suggests that, although there are differences in style in the drafting of the anti-avoidance rules, the effect of each appears to be similar in both countries.

  There would appear to be two differences. First, the Australian Commissioner of Taxation has a discretion, if the Commissioner thinks it fair and reasonable, to make a compensating adjustment to the other party to the transaction if that party is disadvantaged by the Commissioner’s determination. Second, the “do nothing” defence which has been negated in Australia may possibly still be available in South Africa.

• Real VATs vs the good VAT: Reflections from a decade of technical assistance

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  This article explores the distinction between real value-added taxes (VATs) and the good VAT in developing countries. The article draws on real-world examples from a decade of work on technical assistance and international projects in Africa, the Caribbean, Central and South America, Central Asia, the Middle East and Persian Gulf regions. It reviews several problem areas that illustrate the depth of the divide between real VATs and the good VAT: first, the “big-4” issues; second, situations when policy and administration clash; and third, situations in which coordination between agencies breaks down. “Big-4” issues involve problems that plague many VATs in developing (and developed) countries: exemptions; non-export zero rating; multiple rates; and unsuitable thresholds. Frontier issues (real property, financial services, and imported services and e-commerce) also sharply highlight the disconnection between policy wishes and administrative realities in developing countries. Tax policy and administration often clash in the areas of registration and segmentation, VAT withholding, handling of refunds, and the failure to generally apply the statutory provisions of the VAT law and regulations. Coordination problems often arise between government agencies or ministries. Areas of conflict include: discretionary waivers; tax incentives; para-fiscal levies; coordination of import duties, excises and VAT; and (last but not least) data integration between customs and domestic tax administrations. The conclusion sets out some ideas on the challenges for VAT to move forward.

• The adoption of GST in Malaysia: Lessons not learned and a few new paths

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  As one of the last countries in the region to adopt a goods and services tax (GST), or value-added tax (VAT) as the tax is commonly labelled outside Anglo jurisdictions, Malaysia had no shortage of international and regional experiences to draw on when designing and implementing the new tax. While there have been some small hiccups in the adoption of the tax, the switch from a former sales tax (and service tax) to the GST has been a success from both fiscal and public acceptance perspectives. There is, however, room to view critically Malaysia’s disregard of some aspects of good tax design, such as its enthusiastic adoption of GST concessions, seemingly ignoring lessons from abroad on their complexity, cost and targeting inefficiencies. Some aspects of the cross-border supply rules, implementation arrangements and administration procedures may also be problematic. Other design features, however, such as the unique regime for small agricultural concerns and the rules for financial intermediary services may provide examples for other jurisdictions.

• VAT withholding in Ethiopia: Implications for revenue collection and refunds

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  Limited fiscal capacity poses a significant challenge in Ethiopia. Recently, Ethiopia has implemented a value-added tax (VAT) withholding system on payments for acquisitions by governments and government bodies with the aim of mitigating evasion and increasing revenue collection. This study assesses the VAT withholding system and its implications for revenue collection and refunds. The findings are based on data collected through in-depth interviews with selected officials from the Ethiopian Ministry of Finance and Economic Cooperation and Ethiopian Revenue and Customs Authority, and taxpayers in Addis Ababa. The interview data is supplemented by data and documents obtained from these government agencies. A trend analysis suggests that, overall, there is little change in revenue collection.

  The study finds that VAT withholding-related refund requests are increasing and imposing a significant burden on the tax administration and business cash flows. In view of the problems of VAT withholding and poor revenue collections, this study suggests that the government should consider the possibility of abolishing the scheme and taking other measures, such as increasing the registration threshold. It is also important to enhance information exchange with government agencies and exclude those taxpayers who fail to comply with the tax system from the list of suppliers to the government.

• Mitigating VAT compliance costs – A developing country perspective

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  The large-scale presence and the regressive nature of tax compliance costs, especially those in respect of the value-added tax (VAT), are well documented features of the tax systems of developed countries. Although there is less evidence available in the case of developing countries, empirical studies strongly suggest that enterprises in these countries face similar problems. In this article, legal design and administrative features and other strategies adopted by governments and their revenue authorities in developed and developing countries to mitigate VAT compliance costs are considered and contrasted. The proposition that governments and revenue authorities in developing countries have learnt from developed countries and deployed more sophisticated technical and automated solutions will thus be evaluated. The article also highlights the benefits and importance of minimising the division between the legal and administrative design approaches to mitigating high VAT compliance costs. It concludes by making suggestions on further interventions that could be considered by developing countries to mitigate VAT compliance costs, perhaps improve compliance and therefore boost much needed VAT revenues.

• Relevance of the OECD International VAT/GST guidelines for non‑OECD countries

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  The OECD International VAT/GST guidelines (OECD Guidelines) are the most significant global attempt to coordinate place of taxation rules for cross-border supplies of services and intangibles so that the final consumption of such supplies are effectively taxed on a destination basis. However, given that the guidelines are formally a product of the OECD, it is important to assess their relevance for non-OECD countries which might have different constraints, challenges and needs to their OECD counterparts.

  This article explores the relevance of the OECD Guidelines to non-OECD countries by examining the rise of the VAT in non-OECD countries and highlighting some of the challenges and constraints that affect the realisation of tax and VAT reforms in these countries. It then examines the context and content of the OECD Guidelines with a view to these challenges and constraints. The article demonstrates that, although the guidelines are a significant step in the efforts to encourage global coordination on the taxation of cross-border supplies of services and intangibles, a number of technical, normative and administrative issues will require further review so that the guidelines are not merely relevant, but achievable for all countries with a VAT.

• Untangling the worldwide VAT web on digital supplies

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  The imposition of value-added tax (VAT) style consumption taxes on so-called digital supplies is a challenge that has been made necessary by general trends of globalisation and the change in patterns of supply and consumption in the modern economy. Part of this challenge relates to the complexities associated with the supply of intangibles, and this complexity is exacerbated by the fact that many such supplies take place across international borders. Tax systems have long been attempting to meet such challenges and these efforts have been redoubled as a result of the OECD/G20 motivated base erosion and profit shifting (BEPS) initiatives aimed at reducing opportunities to minimise taxation using cross-border structures and arrangements. At the same time, the OECD has been proactive in developing guidelines, for application internationally among OECD members, affecting the imposition of the VAT laws. The most common recent efforts to deal with cross-border supplies of intangibles have been the burgeoning examples of the so-called “Netflix tax”. This is a tax on consumption that might initially be thought to tax consumption of movies, electronic games and similar forms of entertainment.

  This article will review the VAT laws applicable to cross-border provision of so-called digital supplies in a selection of jurisdictions, namely, Australia, South Africa, New Zealand and Canada. The authors will critically analyse the taxes on digital supplies in those jurisdictions and determine the extent to which they comply with, or depart from, the OECD guidelines.