The 2012 Benchmark Survey on VAT / GST (Released by KPMG International, March 2012)

1. The 2012 Benchmark Survey on VAT / GST (Released by KPMG International, March 2012)

2. KEY FINDINGS • More than half of the respondents feel that VAT / GST has a negative cash effect on their business, especially the larger companies. Implication: • Determining the true impact VAT / GST has on a company’s cash position is very challenging as there are numerous factors to consider and the timing of inflows and outflows varies considerably. • Since VAT / GST management is not a straightforward process, more resources should be channeled into it, to minimise the negative impact of VAT / GST.

3. a) Timely and accurate submission of tax returns; and b) Minimisation of penalties and interest are two of the most common and important metrics used to measure efficiency and effectiveness of tax department’s performance as a whole. Implication: The attention given to these metrics implies that businesses face increased compliance risks, with increasing interest, penalties and business disruption costs and rising reputational risk.

4. Findings on VAT / GST management: • A lack of VAT / GST specific performance benchmarks visible to the CFO and the wider business. • VAT / GST specific benchmarks are also viewed as less important compared to benchmarks used to measure the entire tax department’s performance. • A lack of full-time resources allocated to the management of VAT / GST at local, regional and global levels. • Limited embedded processes of sufficient quality to effectively manage • VAT / GST from end-to-end across the business. Implication: Despite the shift to indirect tax globally, VAT / GST remains under-resourced, under-measured and under-managed in most businesses. In short, businesses are not keeping pace with the development of VAT / GST.

5. 4. a) Only a minority, 23% of respondents, has VAT / GST specific Key Performance Indicators (KPIs). b) The three most important KPIs identified by them are: • Timely and accurate submission of VAT / GST returns; • VAT / GST cash flow; and • Reduction in VAT / GST payable on income. All of the above have direct financial impact. Implication: With only 23% of respondents paying attention to the above KPIs, given the scale of VAT / GST throughput being handled by global businesses, businesses are missing significant opportunities to manage risk more efficiently and effectively, improve cash flow and reduce bottom-line cost. Having ‘improvement in VAT / GST cash flow’ and ‘reduction in VAT / GST payable on income’ on the top of the list also reflects a shift in emphasis from risk management to value creation.

6. In terms of comparison across geographical regions: a) There is greater evidence of quality VAT / GST management in Europe, the Middle East and Africa (EMEA). b) EMEA has the largest number of VAT / GST specialists. Implication: This seems expected due to the maturity of VAT / GST regimes in EMEA and their higher average VAT / GST rates. However, in Asia Pacific and Latin America, there is a trend of: a) Increase in size of VAT / GST throughput; b) Increase in complexity of local rules; and c) Shortage of specialists who understand local culture, VAT / GST treatments and tax authority behaviour. It might be worthwhile for businesses to start looking at how compliance risks are being managed.

7. There is tangible evidence that some businesses have started to take steps to assert effective VAT / GST management on a global scale. For example, accountability for VAT / GST has shifted significantly, with more tax departments assuming ownership from Finance. Implication Business are heading in the right direction as the starting point for the effective management of VAT / GST is absolute clarity over where in the business its ownership sits.

8. CONCLUSION • Businesses with effective VAT / GST management are still in the minority. Many multinational businesses worldwide do not have effective global VAT / GST management practices in place. • Increasing globalisation, new business models, evolving finance functions and rapid legislative changes are all putting VAT / GST management under tremendous pressure, but global businesses are not reacting appropriately. • Given the volume of VAT / GST transactions that must be handled at any one time, CEOs, CFOs and Heads of Tax should make sure their organisation's people, system and processes are able to predict and respond to the VAT / GST changes.