Richard Cornelisse

My Own View About Value Added Tax For The United States

In US VAT introduction on 03/03/2012 at 11:04 am
By Richard Cornelisse

In our Blog of March 1 “Would Europe’s Value Added Tax Work For The United States”  we quoted the executive summary of the National Retail Organization.  The report was on their request written by a Big 4 and an university.

First Kelvin and I like to thank Chris Walsh and John Walsh for their opinion (see Blog March 1 the comment box). I agree with John that the government has to make choices and if you know the macroeconomics effects that you could manage the regressive nature of VAT (Chris comment).

I agree also with the executive summary that an increase of prices can have a major impact on the economy especially in the downturn.

Contra Arguments Re Executive Summary

If I look at the executive summary one of the troubling aspects is the reduction of employment of 850,000.  That might be true but does the introduction of VAT not create a lot of jobs as well?  That could be substantial in my view. Companies need to manage their VAT Throughput to mitigate risk and realize opportunities, change means training of people, technology firms need to develop new systems/software etc, tax authorities need to check much more supplies and of course advisers and management consultants need to offer a helping hand.  What is the positive impact on employment? How do you see this?

Chris Walsh shared his opinion re executive summary in the comment box of Blog of March 1.

My Opinion

Introducing a VAT system is the right way to combat the deficit, but I have doubts about the timing and whether this is a realistic scenario. In the end it is all about politics.

Timing

Based on the macroeconomic data is it smart to introduce a VAT system in the downturn. Is the first priority not to realize economic growth, establish trust in the market and therefore should the focus not be on findings ways to increase consumer spending. Is the introduction of a VAT system not counterproductive?

That is also why Kelvin and I have linked the US introduction question to the trend of increase of VAT rates in countries that have a VAT system. Does that make sense?  It does not stimulate economic growth.

Realistic Scenario

In my Blog ‘Is Google The Adviser Of The Future’ I wrote: when somebody wins, somebody else must lose. Without any doubt indirect tax is the right and maybe only way to combat the deficit. Why? I don’t see the US government cut their spending, definitely not in the downturn. However, who might feel a loss and what do politicians need to manage to make it happen?

Besides the end consumer companies might consider it a huge loss. The implementation and compliance costs (e.g. managing ongoing the VAT numbers) are bottom line costs of companies and a decrease of corporate income tax is above the line.  The impact of the shift from direct (lowering corporate income tax) to indirect tax might not be seen as a positive.

The US is known for their powerful lobby groups.  I believe that too many might feel a loss to make it politically feasible. If we look again at the report by National Retail Organization we know that the retail industry in general will face these costs and it is not a real surprise that the negatives are highlighted. It is their report and maybe those highlights were part of the scope of work of its advisers. The results contribute to their own strategic aim and their lobby against has already started.

As said we like to facilitate a discussion and as we are not (like Chris Walsh) US experts we truly appreciate his and your opinion.

By the way I found a website that links all articles, video etc that explain and advocate a Value Added Tax For the United States.  I have updated our Blog of March 1 also with this link.

Richard Cornelisse is CEO of the KEY Group and worked previously as Big4 Partner in the Tax Performance Advisory and Indirect Tax Practice and blogs on Tax Function Effectiveness and Tax Control Framework developments.

Tax Management Consultancy welcomes your opinion on any of the issues raised, so feel free to join in the discussion on LinkedIn | Twitter | Facebook.

  1. […] would mean that the tax administration should overlook much more transactions.  More work means more resources. A new tax system means education and training.  More complexity means the need for supporting […]

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