Closing Remarks by Angel Gurría, OECD Secretary-General at the First Meeting of the OECD Global Forum on Value Added Tax (VAT)
Paris, Thursday, 8 November 2012
(As prepared for delivery)
Ladies and Gentlemen:
You know what they say, the way taxes are, you might as well marry for love.
On a more serious note, it is great to be here with you to conclude the first meeting of the OECD Global Forum on VAT. I am delighted to know that we brought together more than ninety delegations with experts representing over eighty countries from all continents, International Organisations, the business community and academia.
It is also great to know that the dialogue over the last two days was intense and conducted in a genuinely inclusive spirit, with a true willingness to learn from each other and work together to improve the design and operation of efficient and equitable VAT systems. This is all great news. Our VAT policies are important tools to foster growth and employment, but also to build stronger, cleaner and fairer economies.
I know that your discussions have been highly productive indeed. And I know that each of you will take home a rich list of reflections and conclusions. But let me focus briefly on three key findings of this Forum that I am sure will drive our efforts in this partnership.
First, VAT policies are playing a strategic role in our recovery efforts, but they could do more.
Many countries are seeking to raise additional revenues from VAT as part of their fiscal consolidation strategies. Between 2009 and 2012, sixteen OECD countries increased their VAT rates. Six more increased their VAT rates. This is reflected in the OECD average standard VAT rate that has risen from 17.7% in 2008 to 19% today. This is quite remarkable considering that the OECD average had remained stable for over ten years before 2008.
Raising the standard rate is the easiest way to increase revenue. However, it has its limitations, in particular for countries that already apply a relatively high standard rate. Another option for governments is to consider broadening the tax base, such that goods and services that are now exempt or subject to reduced rates would gradually be taxed at the standard rate. Let’s not forget the political difficulty of doing so. Exemptions and reduced rates are still widely applied to basic essentials; food, health, education. But studies generally indicate that reduced rates are not an effective way of achieving redistributional or social objectives.
The OECD’s Centre for Tax Policy and Administration has worked on the economic impact of VAT policy and reform and is ready to do more with a view to developing evidence-based recommendations for governments on issues such as the appropriate share of VAT in the overall tax mix, the design of growth-friendly tax policy, options for VAT base-broadening, and policies for addressing social and distributional concerns raised by VAT reforms.
Second, to make the most of our VAT systems we need to close the “black holes.”
The message here is also pretty clear. We need to better administer VAT systems to promote economic activity, but also to eliminate VAT fraud. Complex and burdensome procedures not only have an adverse effect on growth and competitiveness and on tax administration’s efficiency and effectiveness, but also on non-compliance. Well-designed and well-managed VAT systems lead to lower levels of non-compliance, lower administration costs and greater revenue mobilisation.
We need to advance work on assessing and understanding the burden of VAT compliance while thinking about reform and improvement.
For example, now that many governments are facing deficits of up to 10% of GDP, it is increasingly unacceptable that the revenue loss from VAT fraud and avoidance is running at 10% and in some instances, at 30% of potential VAT revenues. This is not just caused by criminal activities, but also by tax evasion and aggressive tax planning.
This is clearly a key priority, and the OECD stands ready to help governments establish effective and targeted countermeasures, including on mechanisms for increasing cross-border information exchange.
The third and final point that I want to highlight is that well designed and coordinated VAT systems are essential to remove barriers to international trade.
Badly designed and uncoordinated VAT systems distort trade through double taxation, but they also create risks of under-taxation and loss of revenue for governments and large revenue risks and high compliance costs for businesses.
This is particularly relevant in the sphere of international trade in services, which has grown steadily over the last years. In fact, between 2000 and 2008, these flows have doubled, with growth rates in the emerging market economies even greater than in the OECD area, reaching a scale to have material effects on government revenues and economic growth.
The OECD is developing the International VAT Guidelines as the future international standard for applying VAT to cross-border trade, for which there is a strong demand from both governments and businesses. An ambitious programme of work will be completed and a first comprehensive set of guidelines will be presented to the international community early next year.
With countries outside the current OECD membership accounting for 30-40% of world trade in goods and services, it is clear that we need to work together and with other international organisations towards a broad consensus on these Guidelines to achieve their wide endorsement as an international standard.
The intense and high quality debate on this issue during this Global Forum has shown that countries around the world share this ambition.
Ladies and Gentlemen:
Leo Tolstoy once wrote that all happy families are alike. Most countries with a VAT seem reasonably happy with their system, while recognising that many of the issues they are dealing with are very alike. Although the mix and weight of challenges and priorities and the possible remedies may be quite different, the scope for experience sharing and learning from each other is enormous.
I am delighted to see that all stakeholders have taken full advantage of the opportunities that this Global Forum is offering and are looking forward to continuing the collaborative work with a common objective to improve the performance of VAT and to safeguard its future.
The design and implementation of a VAT is a continuing process of improvement in both design and implementation. The range of challenges means that the VAT will remain on the reform agenda for many years to come. The OECD will continue to be the ally of governments in advancing this reform process through development of international standards and high-quality analysis.