Research into the VAT/GST compliance burden

August 21, 2019   |   by David Massey

A team of researchers from UNSW Sydney has just completed a research project to develop and test a diagnostic tool designed to identify the compliance burden, and the key drivers of that burden, of VAT and GST regimes around the world. The UNSW team (Professors Chris Evans, Richard Highfield, Binh Tran-Nam and Michael Walpole) worked closely with other academics and tax administrators from Australia and around the world (including colleagues at the University of Exeter and the University of Pretoria), as part of a broad collaboration with KPMG International. The diagnostic tool was applied in the 47 member countries of the Forum on Tax Administration that have a VAT/GST regime in place, including most of the OECD countries plus a few transitional and developing economies. The tool employed 4 over-arching factors considered critical to the compliance burden (tax law complexity, the number and frequency of administrative obligations, revenue body capabilities to support taxpayers, and monetary costs and benefits) involving 27 more specific indicators, all scored and weighted to derive an overall comparative measure on a compliance burden index.

The research concluded that 14 countries around the world score favourably overall, including Australia, Ireland, New Zealand and South Africa, with a compliance burden index of 4 or less, while 15 countries were rated with a score of 6 or more, suggesting the need for policy and/or administrative reforms in those locations in order to help reduce the compliance burden — for taxpayers and for tax administrators. The UK joined 17 other countries in the middle of the table with an overall score of 5. The study also suggests that governments and their tax administrations can learn from those jurisdictions where the compliance burden is rated more favourably. For example, by implementing technology solutions in order to help streamline processes. The results of the application of the diagnostic tool also show that, as a VAT/GST regime grows older, the relative compliance burden tends to be higher, and that, from a macroeconomic perspective, the VAT/GST compliance burden is generally higher in less developed countries. Both higher levels of exports as a percentage of GDP, as well as the higher the ratio of tax to GDP in a country, are also associated with a higher compliance burden.

A full copy of the research report can be accessed at https://www.business.unsw.edu.au/Our-People-Site/Documents/Joint%20Report%20on%20VAT%20compliance%20costs%20tool.pdf . The UNSW team considers that, at this stage, it has sufficient proof of concept to be able to undertake, in collaboration with stakeholders, the development of a broader suite of diagnostic tools designed to measure and evaluate the tax compliance burden of other business taxes, in particular, the corporate income tax; tax regimes applicable to the provision of labour (for example PAYG and social security taxes); and customs duties and excises.