Global VAT news April 2011

Tuesday, April 5, 2011

by Nick Ryan

Introduction of GST in India:
The current consumption tax system in India is a complicated, multi-layered system that has been subject to a process of radical change over the past several years. The relative complexity of the current model has prompted the development of the plan to move to Goods and Services Tax (GST) that will create a simplified and integrated system of indirect taxation. Rather than being a new indirect tax, the introduction of a GST will be, in effect, an integration and rationalisation of the existing regimes at both federal and state levels.

It has been decided that a dual GST is to be introduced, whereby on an intra-State transaction of a supply of goods or services, Central Goods and Services Tax (CGST) and a State Goods and Services Tax (SGST) will be levied on the taxable value, and both the Centre and the State will legislate, levy and administer the CGST and SGST respectively. Further, in case of inter-State transactions, Inter-State Goods and Services Tax (IGST) are proposed to be levied.

Although a specific date for the introduction of the dual GST has not been announced, it is likely to come into effect during 2012.

VAT rate increases of note

Apart from the proposed rate rise in the UK the following changes in rates are of note:
Poland – with effect from 1 January 2011 the standard rate has increased to 23% from 22% and the reduced rate will rise to 8%. Both increases are projected to stay in place for three years as part of their austerity measures.
Portugal, the Azores and Madeira – the standard rate has increased from 1 January 2011 to 235 for mainland Portugal and 16% for the Azores and Madeira from 22% and 15% respectively.
Latvia is t increase the standard rate to 22% from 21%.
Slovakia has increased the standard rate to 20% from 19% effective from 1 January 2011.
Switzerland from 1 January 2011 will have a standard rate of 8% and a reduced rates of 3.85 and 2.5%.

UK Budget: VAT measures introduced
In summary there was the usual measures introduced covering VAT registration threshold and rate increases in line with inflation across the indirect taxes. Also of note was the welcome reduction in fuel duty by 1p per litre and the replacement of the fuel duty escalator. With regard to the environmental taxes there was a significant change to the climate levy and the launch of the consultation process on air passenger duty.

From a VAT perspective, the following changes to be announced on 31 March in the Finance Bill 2011 are of note:

There are two notable anti avoidance measures. Firstly, included in Finance Bill 2011 are the Telewest anti avoidance provisions which are to deny zero-rating for ancillary printed matter where it is connected with a supply of a differently rated service. Also included is the announcement that the Government will introduce a new online notification system for road vehicles aimed at tackling VAT fraud on imported road vehicles, this will be introduced in the UK from 2013 in order to combat fraud in this area. This will be a joint HMRC and Driver and Vehicle Licensing Agency (DVLA) initiative.

Outside of anti avoidance, a number of other measures were announced, these included the reduction from £18 to £15 from November 2011 of the low value consignment relief threshold and further consideration will be given by the government to other measures to put in place to prevent the continued exploitation of this relief for purposes it was not intended for. I understand that representatives in Jersey have already raised concerns over to the impact to businesses in Jersey and the Channel Islands to the introduction of this measure the potential loss of business.

VAT legislation is to be amended to reflect the ECJ ruling in EMI for the application of the relief on business samples provided for marketing purposes, the purpose being to extend the relief allowable.

UK law is also to be amended to provide for a clearer transposition of EC legislation covering the VAT treatment of public bodies and their activities notably those undertaken that could be construed to be in competition with the private sector. This is following the changes made here in Ireland.

Finally, subject to consultation, the government is to allow the facility for businesses to register, de-register etc. for VAT online. Part of these proposed changes include the removal of the UK VAT registration threshold for non-established businesses and the potential from 1 April 2012 for VAT registered businesses to file VAT returns online and pay electronically.

UK: Changes to the rules for VAT recovery in connection with land, property, aircraft and boats

With effect from I January 2011 taxable persons purchasing the above will be restricted in recovering VAT on the above in line with the level of business use the asset is put to, subject to any partial exemption restrictions. For assets purchased costing more than £50,000 then there will be a requirement to include them in the Capital Goods Scheme which should provide for a fair recovery.

Summary of recent global news:

Poland opts for a broader interpretation of the VAT Package rules

Poland has introduced a broad reverse charge rule for all local supplies of goods and services made by non-residents effective from 1 April 2011. This approach is similar to the rules in place in the Netherlands for domestic supplies and Finland covering construction services.

EU Commission launches public consultation process on the introduction of a tax on financial transactions

This will be of interest to those in the financial services sector in moves which will clearly be of interest to all those in the financial services sector. The consultation process closes on 19 April 2011. Along with this the European Parliament has voted to support the introduction of a low rate financial transactions tax and is looking for an immediate implementation of this.

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