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Adopting an effective management framework

World trade patterns are changing At the start of the 1990s, global trade was dominated by the developed nations; by 2010, the advanced economies accounted for a little more than 60% of global merchandise exports. New markets are opening, companies are exporting to more countries than ever before and trade routes are changing. China is now the biggest trading partner for Australia, Japan, South Korea, India, Russia and South Africa and is increasing its share of trade with Europe and the US. As the current emerging economies (such as Brazil, Russia, India and China) grow and mature, new developing economies are likely to emerge (such as Vietnam and Cambodia). Supply chains are transforming In response to these changing patterns in global trade, companies are rapidly transforming their supply chains to go wherever necessary to support growth and reduce costs and risks. For many companies, supply chain activities — such as product engineering, sourcing, manufacturing and logistics — are now widely dispersed around the world. As activities are outsourced, centralized and streamlined to gain efficiencies and maximize scarce resources, corporate structures and functions are also being transformed. Indirect taxes in the supply chain Changing global supply chains challenge indirect taxes Changes in world trade and in supply chain models present challenges for indirect taxes (including taxes on consumption such as VAT/GST and sales taxes, customs duties and environmental taxes, as well as grants and incentives) and excise duties. Because supply chain transformations are intended to obtain operational and financial benefits, indirect tax considerations may not be at the forefront of the decision — despite the fact that indirect tax treatment of transactions, the company’s compliance obligations and the customs regimes and incentives that are available may be seriously different as a result of any change. Changing indirect taxes challenge global supply chains Governments around the world are increasingly relying on indirect taxes to bolster revenues and fund tax reforms in other areas. Global companies need to be aware of the main trends in indirect taxation and their impact not only on supply chain transformations but also on their existing supply chains. Broadly, recent changes include: increasing tax rates for VAT/GST and excise taxes; the adoption of new taxes as emerging markets introduce VAT/GST and developed markets introduce new excise and “green” taxes to influence consumer behavior and protect the environment; a reduction in customs duties through new Free Trade and Preferential Trade 2 Managing indirect taxes in the supply chain agreements; and an increasing range of tax incentives and grants aimed at stimulating job creation, particularly highervalue, high-wage activities and non polluting industries. Companies should also be aware of the growing emphasis by tax authorities on full compliance with indirect tax obligations. Increasingly, they are turning to advance technologies for reporting obligations, to collect information and to audit companies’ activities. Although a growing number of countries are imposing requirements on companies to submit electronic data, there is still little harmonization of indirect tax reporting requirements in different jurisdictions, adding to global companies’ compliance obligations and the risk of making errors.