We are in the eye of the storm.

In the years running up to 2020, policymakers around the world embarked on a journey to tax the digital economy under indirect taxation systems such as a value added tax (VAT) or goods and services tax (GST).1 They did so by reference to several fundamental principles as established by the Organisation for Economic Co-operation and Development (OECD) International VAT/GST Guidelines. First, indirect taxes should be applied to digital business activities on a basis equivalent to that of traditional businesses, so as to ensure a level playing field.2 Second, indirect taxes should be applied and collected in the jurisdiction in which the consumption of the relevant good or service takes place.3 Third, when the supplier of a digital service does not have a presence in the jurisdiction in which consumption takes place, it should be required to register and account for the VAT in that jurisdiction (often under a simplified compliance approach).4 Fourth, the prevalence and ease of internet shopping means that the exemption thresholds for collecting VAT at the border arising from consumers purchasing low value goods online from overseas should be lowered, reconfigured or even eliminated. Fifth, in many jurisdictions the obligation to collect and remit the VAT should, as an administrative measure, be imposed on the digital platform instead of the vendors whose goods or services are being sold on the platform and imported into the jurisdiction of the consumer.5

Tax authorities started to realize that these measures were highly effective in raising revenues. With just a hint of hubris, the European Commission reported revenues for the first 6 months of €6.8 billion (US$7 billion) from new measures designed to deal with cross-border business-to-consumer (B2C) online shopping introduced in July 2021, with almost €700 million (US$728 million) representing new VAT revenue.6 Likewise, the Australian Taxation Office initially budgeted to receive AU$350 million (US$246 million) in revenues over 4 years from its GST digital economy measures7, but in fact realized revenues of AU$355 million (US$250 million) in 2017-18 alone, rising to AU$990 million in 2020-21 (US$700 million).8

In the period from roughly 2015 to 2022, new measures to tax the digital economy under indirect tax systems have also spread around the world at a rapid pace, reportedly reaching over 100 countries.9

The storm began with the initial phase of implementation. However, as Hugh Bonneville said, “...when you are in the eye of the storm, you are often not aware of the whiplash around you.”

In this article, we intend to demonstrate that VAT measures introduced to deal with the digital economy are on the cusp of a new and far more volatile period. We will show that while tax authorities around the world were very successful with the initial measures to tax the digital economy under a VAT, we are in the eye of the storm. Not far ahead on the horizon is considerable turbulence. Our fear is that policymakers have been buoyed by their early successes and risk significant overreach as a result. They vastly underestimate the impact of their measures as we move from a phase that was designed to capture (only) the largest digital services providers around the world into everyday businesses embarking on their digitalization journey.

Let’s move forward into the future of VAT in a digital world through the below eight propositions. By their very nature as propositions, they are not intended to provide any guarantees to future outcomes.


Eight propositions on the future of indirect tax


Connect with us

Key Contact

Lachlan Wolfers

Head of Data, Global Tax & Legal, and Head of Global Indirect Tax Services, KPMG International

Key Contact

Philippe Stephanny

Senior Manager, Global Indirect Tax Services, KPMG in the US

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1 In this paper we will use the term VAT. It is taken to include a GST, Sales and Service Tax (Malaysia), Consumption Tax (Japan).

2 Guideline 2.2, OECD (2017), International VAT/GST Guidelines, OECD Publishing, Paris.

3 Guideline 3.6, OECD (2017), International VAT/GST Guidelines, OECD Publishing, Paris.

4 Paragraph 3.132 and following, OECD (2017), International VAT/GST Guidelines, OECD Publishing, Paris.

5 OECD (2019), “The role of digital platforms in the collection of VAT/GST on online sales”, OECD, Paris.

6 “New VAT rules for e-commerce: Updated revenue figures point to a successful implementation”, Directorate-General for Taxation and Customs Union, European Commission, 23 May 2022.

7 The Honourable Joe Hockey MP, Treasurer, Press Release entitled “Strengthening our Taxation System”, 11 May 2015.

8 Australian Taxation Office, “GST administration annual performance report: 2020-21”, released February 2022.

9 Richard Asquith of VAT Calc reported on LinkedIn there were 99 countries as of 11 April 2022. More have since been added.