D. Murali/C. Ramesh

Chennai, August 3: KPMG has released its Corporate and Indirect Tax Rate Survey 2007, which analyses the taxation patterns over 15 years across 92 nations. For the first time, the survey has included indirect tax rates such as Value Added Tax (VAT) and Goods and Services Tax (GST).

This was done because of the increasing importance that indirect taxes seem to be playing in the revenue-gathering strategies of many countries around the world, said Mr Loughlin Hickey, Global Managing Partner, Tax in the survey.

"It is too early to call this a worldwide trend. But there is a clear tendency among nations in competition to attract and keep inward investment, to reduce corporate tax rates and seek to make up the shortfall with increases in indirect taxes."

The countries resort to this instead of relying solely on growth brought about by corporate investment to expand the tax base.

According to Mr Hickey, these tactics suggest that as well as attracting new investment, "retaining current investments is a success in itself."

In the Asia-Pacific region, following India’s rate decrease in 2006, Malaysia has reduced corporate income tax rate by one percentage point while Sri Lanka has increased its rate by 2.5 percentage points.

This leaves the region’s average rate broadly unchanged at just over 30 per cent, "although this is likely to change next year when the full impact of China’s planned tax reductions is felt."

The survey throws up interesting insights into the taxation strategies adopted by countries, such as Singapore retaining one of the lowest VAT/GST rates, Aruba charging the lowest rates (just three per cent), and highest rates being charged by Sweden, Denmark and Norway (25 per cent).

It also found that the average VAT rate in the EU is higher at 19.5 per cent than the average in the OECD countries (17.7 per cent), Asia Pacific countries (10.8 per cent) or South American countries (14.2 per cent).

There is no VAT or GST in Hong Kong, while Bahrain is a tax-free country, a land where there is no corporate or personal income tax.

Mr Hickey said that it is clear that corporate tax rates in Europe are still being driven down, even as indirect taxes remain high.

"There should be some significant further reductions in the pipeline, from the UK, Germany, Spain, Singapore and China to name but five, that will be reflected in next year’s report."