BRICS in trouble
- 24 September 2015 | Richard Asquith
As emerging markets endure ongoing economic uncertainties, and the threat of a US interest rate rise which would redirect investment, VAT reforms have fallen out of favour. The 'BRICS' (Brazil, Russia, India, China and South Africa) countries are enduring their own versions of this.
Brazil revives controversial indirect taxes
Brazil’s retreat into recession this last quarter has prompted the reintroduction of the CPMF tax to meet 2015 deficit targets. This levies a financial transactions tax on bank withdrawals. It was last levied 5 years ago with disappointing results.
Russia raises taxes as oil price plummets
Oil exporting Russia is feeling the pressure from the halving of crude world prices in the past year. This has put its economy into a sharp recession. It is now considering a range of new taxes and tax rate hikes.
India GST implementation slips
The reform-minded BJP government of premier Modi seems likely to miss its target of overhauling India’s byzantine VAT regime in 2016. India currently has a number of overlapping consumptions taxes, such as VAT, CENVAT and Serivces Tax, which lead to double taxation and a disincentive to manufacturers to trade across Indian internal state borders. To get the replacement and simplified Goods & Services Tax (GST) implemented, the BJP had to make many compromises with the States. But this has lost it support in parliament, and looks certain to push the introduction of GST into 2017 or even beyond.
The new GST regime had promised to inject up to 2% annual growth into the Indian economy.
China’s slowing delays VAT overhaul
However, the sharp slowing of its economy, which threatens the global economy, has meant that the next stages of VAT reform have been postponed till 2016. This would affect the retail and construction industries. Reform of VAT in the former is key to helping China ‘pivot’ from an export-driven model to internal consumption.