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Global Trends in VAT and Sales Tax: 2023

In the last several years, the world’s economy has suffered from several unprecedented events that some scientists call the black swans. As a response to changing economic conditions, many countries have developed sales tax and VAT-related measures to better adapt their economies. In this article, we’re looking at what’s happening in the US, Europe, and other countries and how these economies are dealing with changing customer needs and business structures.

Increases in VAT rates and modernization of VAT

Some countries have already increased their VAT rates. This is done to offset budget deficits and reduce public debt. At the same time, VAT is being modernized and broadened. For example, some states in the US are reviewing their sales tax laws to finally tax digital services and goods, while the EU is already implementing the VAT in the Digital Age program, which will make VAT more transparent and equalized. By reviewing the taxation of digital services and goods, countries can potentially collect much more tax into their budgets. At the same time, some countries respond to the climate crisis by implementing green taxes and the so-called green VAT, such as taxes on virgin plastic products. Among the countries that pioneer in this field is Spain.

VAT reductions to aid economy

While the standard VAT rate is often increased to fill the budget, many countries respond to the economic slowdown’s impact on the most vulnerable social groups by reducing VAT on selected goods such as utilities or grocery items. Many countries have also reduced VAT on hospitality and culture services as a means to help such businesses to fight the damage the pandemic brought to their sector.

A good example is the US states like Louisiana or Michigan, which had made feminine hygiene products sales tax-exempt, or Poland, which reduced VAT on food items and heating when the inflation soared.

Changes in VAT compliance

Many changes are happening in the VAT reporting area with a rapid increase in the countries’ digitalization efforts. Digitalization is used as a tool to diminish VAT fraud. This is mostly seen in the EU as part of the previously mentioned VAT in the Digital Age paradigm. Experts predict that VAT reporting streamlining will soon happen in the US, too.

If you want to receive individualized advice on how your business should respond to these changes — contact our team and onboard a trustworthy taxation partner.