Indirect tax often has low priority and that the focus of senior management is primarily on direct tax effectiveness. As a starting point to change this mind-set the VAT throughput – amount of VAT under management – could be used.
The VAT throughput could calculate via the company’s annual report based on the following data:
- Regional/country turnover
- Average of VAT/GST/SUT rates across regions/countries
- Cost of goods sold
- Indirect expenses, sales, administration, R&D, general
- Labor costs
- Estimated percentage of inter-company transactions.
The estimated amount of VAT/GST under management could be calculated as a total amount with potential impact in total profits but also the impact on earnings per share. It will be the ‘language’ that the CFO understands.
Via How to increase indirect tax function’s effectiveness / Richard Cornelisse