The TMF Group has released a report on the trend, of employing VAT hikes to fund competitive reforms, used by the European Union of Member States. It is important to note that starting this January 1, 2014, 20% of Franceís headline VAT has increased.
Head of Tax at the TMF Group, Richard Asquith said that France has considered for two years on a VAT rise to rebalance the nations deficit. He was doubtful about how well the economy can withstand more tax. He also mentioned that implementing taxes on shoppers is required for countries to attract international companies and to remain competitive in the global market.
TMF points that similar to France's move, United Kingdom had also taken a policy decision in 2011 when itís VAT increased by 20%. By lowering the corporate tax to 20% by 2015, the UK is now using the additional revenues to enhance the nation's competitiveness. It also mentioned that Italy too has decided to raise the VAT rate of 22% that was increased in October, 2013. Italy plans to finance lower business and employment taxes with the additional revenues.
TMF Group believes that when VAT hike is used to fund lower taxes for businesses can improve a country's competitiveness since exports do not face VAT. The EU trend can be an outcome of the positives of hiking VAT over the various other forms of taxation as VAT is less exposed to complex schemes of avoiding tax often opted by multinationals. The consumption is also more predictable compared to business profits, particularly during periods of recession.