Taxpayers in Romania and throughout the world can expect to pay more tax in the years ahead as governments expand their tax systems to repay debt and pay for increased social welfare, and international efforts to update tax legislation for the 21st century take hold.
These are the conclusions of the latest tax report from KPMG International, the 2015 Global Tax Rate Survey. Drawing on information from KPMG member firms in 145 countries, the survey shows that while tax rates in general are not changing very fast, governments are moving to widen the tax base, increasing the range of goods, services and activities that can be taxed to bring in more revenue. At the same time, tax concessions introduced during the recession to support industry and encourage consumers to spend are being withdrawn.
This widespread change is being driven, in part, by global economic recovery and by changing expectations of state-provided social care. Governments have done what they can to keep economies active and healthy during the years since the global financial crisis of 2008, and many have run up large debts in the process. Now that many economies are moving out of recession and into growth, we are seeing legislatures updating their tax systems to increase revenues so that they can pay down the debt.
At the same time, people’s expectation of the level of care that they can expect from the State generally has increased all over the world. Social welfare is expensive, and governments are caught between meeting the expectations of their populations and finding the means to pay for them.
Simply raising income tax rates is difficult when companies and people can easily make comparisons between tax rates in different countries. Governments are having to find different ways to increase their revenue.
The survey shows that social security rates have been increasing around the world. Global average social security rates for employers and employees are now higher than they have been at any time in the past seven years.
There has also been a quiet movement in favor of indirect taxes -- Value Added Tax (VAT) or Goods and Services Tax (GST). With new VATs being introduced this year in Malaysia and the Bahamas, and plans for a similar tax in India and the Gulf States, VAT now exists in more than 160 countries.
Ramona Jurubiță, Head of Tax & Legal, KPMG in Romania, explains that Romania is an exception to these trends, as social security contributions due by employers saw a 5 percentage point decrease in late 2014 and further significant tax cuts, including to VAT, are expected in 2016 and 2017, as part of a larger tax reform.
”These reductions in taxes have been long awaited, given that taxation of labor was already high, especially for low-income individuals, while the standard VAT rate in Romania (24%) is currently among the highest in the region and even in the world, as the study shows.”
”Nevertheless, similarly to the majority of countries included in the study, tax cuts in Romania have been accompanied by a widening of the tax base and by tackling tax evasion and avoidance more aggressively, both through tightening anti-avoidance legislation and through more focused tax audits.”
The economic and social drivers for higher taxes come at a time when a major international effort to update and modernize tax systems is reaching completion. Initiated by the Organisation for Economic Co-operation and Development (OECD) in 2013 and endorsed by the G20, the OECD’s Action Plan to address Base Erosion and Profit Shifting (BEPS) includes 15 key steps to encourage more transparency, better reporting and more co-operation between countries in which multinational companies operate. On 5 October 2015, the OECD issued a final package of reports as well as a plan for follow-up work and a timetable for implementation. While implementation and timing will vary across borders—and some European jurisdictions have already incorporated aspects of the plan—the final OECD release marks a crucial shift from the recommendation and consultation phase of BEPS to legislation and implementation.
“I applaud the work being done by the OECD,” said KPMG’s Global Head of Tax, Greg Wiebe. “I’m confident this initiative will lead to a different tax system in the future, one that is fit for purpose, encourages more transparency and is better equipped for the demands of the 21st century.”
KPMG is a global network of professional firms providing Audit, Tax and Advisory services. We operate in 155 countries and have 162,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.
KPMG in Romania and Moldova operates from six offices located in Bucharest, Cluj-Napoca, Constanta, Iasi, Timisoara and Chisinau.
Global Tax Survey 2015 - Key Findings
Global Tax Rate Survey 2015