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How three global trends are shaping indirect tax

photographic portrait of Kevin MacAuley
Kevin MacAuley

EY Global Director of Indirect Tax

6 minute read 19 Jun 2023
Related topics
Tax
Global trade
Indirect tax leaders need to comply and spot the opportunities in the megatrends affecting indirect tax policies and international trade.

In brief

  • Three global megatrends are influencing indirect tax policies and business operations: global trade, transformation and sustainability.
  • Indirect tax functions must identify, plan for, monitor, and comply with new taxes and incentives and to deal with a shifting supply chain landscape.
  • But the megatrends also provide opportunities for the indirect tax function to provide valuable insights, helping their organizations thrive in turbulent times.

As we continue to navigate a turbulent year for the global economy, three overarching trends are shaping indirect tax policy and how indirect tax leaders plan: global trade, transformation and sustainability. These external pressures mean indirect tax teams must be agile, use technology to adapt, and sometimes do more with less. But they are also creating new opportunities for indirect tax and trade functions to help their organizations thrive in a world of change.

A world of change

The economic and geopolitical challenges we are dealing with globally are driving a significant additional focus on indirect tax. Indirect taxes, including VAT/GST/sales tax, property tax, customs and excise duties, and environmental taxes, are becoming more prominent and demanding worldwide. Amid significant budget pressures post-pandemic, governments are using indirect taxes to meet their revenue needs. They are also using tax and trade measures to pursue political aims and to drive change in areas, such as sustainability.  This focus has created a great deal of legislative change, creating new obligations and placing far greater emphasis on technology to drive tax and trade processes and compliance. Managing indirect taxes effectively is more critical than ever to managing cash flow and costs, and reducing exposure to potential audits and litigation by tax authorities.

How EY can help

Trade disruption

Indirect taxes are inextricably linked to supply chain activities and global trade. Changes in the ways that companies do business have a profound impact on these taxes. Equally, changes in these taxes may have a profound effect on companies' supply chains. A clear theme of the past year has been trading disruption. The war in Ukraine has contributed significantly to this, but it has not been the only factor. Trade disputes, new trade agreements and alliances, a rapidly changing regulatory environment, and the ongoing effects of the COVID-19 pandemic have all contributed. The trade function has never been so much in the spotlight – nor has it had such a significant opportunity to contribute to the performance of the organization.

Transformation

Factors driving transformation include the race for talent, and increasing regulation and complexity. But the biggest driver is technology. Around the world, tax and trade authorities are adopting technology and automating manual processes at pace. They are demanding real-time transactional data and the use of e-invoicing and real-time reporting is becoming a reality in many jurisdictions.  As a result, tax and trade authorities now have more visibility of companies’ day-to-day operations – putting the onus on businesses to improve their collection and management of data. And as new taxes and reporting obligations come on board, this often means identifying data across the enterprise and even throughout the supply chain.

How EY can help

Sustainability

The climate crisis and the need to protect the environment and human health are high on the agenda for governments, corporations and citizens worldwide.

Increasingly, governments are using indirect taxes to drive their environmental, social and governance (ESG) policies. Indirect taxes are raising revenues to help fund green policies. And new green taxes are encouraging citizens and businesses to make the necessary changes to meet sustainability targets. This large and ever-evolving group of taxes creates pressure on tax and trade functions. They must understand what taxes apply to their businesses, how to meet their obligations and also factor them into supply chain decisions and costings. They can, for example, help to reduce costs, mitigate compliance risks and identify opportunities for grants and incentives to fund green investments. But the pace and nature of these changes can often leave indirect tax teams unclear about their role and responsibilities – making it hard to act effectively.

There has never been a better opportunity for indirect tax leaders to add value to their organizations. They can affect change and achieve results by using their skills, building relationships internally, and employing innovative tech.

They must also consider the bigger picture and how the overarching global trends of global trade, transformation and sustainability shape the indirect tax function. This is the first of a four part series of articles that dive deep into each trend to help leaders frame the indirect tax discussion within their business, navigate the challenges and grasp the opportunities.

Explore the Indirect tax trends series

How disruption is shaping opportunities for global trade

In the face of continued geopolitical uncertainty, indirect tax and trade functions have an opportunity to show their real value. Find out more.

EY Global

    Summary

    Global trade, transformation and sustainability are transforming businesses globally. The challenges and risks are real – but so are the opportunities.

    Indirect tax and global trade functions must be agile and proactive in complying with new obligations, managing data and harnessing new technologies.

    This will allow them to seize opportunities and provide valuable insights that will benefit the whole organization – allowing it to not only survive but also thrive in turbulent times.

    About this article

    photographic portrait of Kevin MacAuley
    Kevin MacAuley
    EY Global Director of Indirect Tax
    Longtime authority on VAT and its impact on global supply chains. Digital thinker skilled in designing and implementing systems. Regular speaker at conferences around the world.
    Related topics
    Tax
    Global trade

    EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.