In recent years the revenue from consumption taxes such as Valued Added Tax (VAT) and Goods and Services Tax (GST) has increased significantly as a proportion of total government revenues in many OECD countries. At the same time international trade in goods and services has expanded rapidly as a result of globalisation spurred on by deregulation, privatisation and the information technology revolution. As a result the interaction between consumption tax systems operated by individual countries has come under greater scrutiny as potential for double and unintentional non-taxation has increased. In addition there are also administrative issues connected with the growth in international trade which revenue administrations increasingly need to consider and take appropriate actions.
The OECD has long held a lead position in dealing with the international aspects of direct taxes and during the 1990s recognised a growing need for similar attention to be paid to consumption taxes. Policy makers and administrators must have a greater awareness of the way consumption taxes operate internationally. Without this awareness there is greater potential for creating tax policies that conflict with the wider efforts to develop international trade and achieve higher sustainable economic growth.
Consumption taxes depend on businesses being responsible for the proper collection and remittance of the revenue. In order to ensure good compliance standards these responsibilities should be as simple, straightforward and certain as possible. To this end administrators need to be aware that complex compliance burdens imposed on business may well result in reduced compliance standards. The Consumption Tax Guidance is a means of developing greater awareness of both policy and administrative issues. On policy issues the Guidance contains recommendations to member governments that are aimed at removing conflicts, distortions and disincentives to international trade.
The OECD’s Committee on Fiscal Affairs has approved the contents of the Series and countries are encouraged to apply the guidance wherever possible. Nothing contained herein binds member countries, although where there is clear consensus amongst the member countries, administrations should consider the guidance in the light of their existing taxation systems and their legislative approaches.
The initial papers are based on the Committee’s work on electronic commerce. Future papers in the Series will flow from the Committee’s continuing work programme for Consumption taxes. This currently includes taxation of international services and a number of administrative issues.
Available Papers in the Consumption Tax Guidance Series: