On 19 April 2021 the OECD released a report entitled The Impact of the Growth of the Sharing and Gig Economy on VAT/GST Policy and Administration.
Some industries have been transformed by the sharing and gig economy in recent years, with the rise of digital platforms. The ability to collect and analyse vast amounts of data has allowed the development of innovative business models based on the sharing of assets rather than traditional ownership-based concepts. Consumers require flexible on-demand access to assets and services, with opportunities to monetize underutilized assets and labour.
The transportation, tourism, hospitality, professional services and finance sectors have been greatly changed by the sharing and gig economy. The position of long-established operators in those industries have been challenged by the new entrants from the sharing and gig economies. Also, other industries could face changes from the emergence of sharing models.
The changes have brought new challenges for regulatory frameworks including VAT and GST legislation. They need to adapt to protect the revenue from VAT and GST and keep distortions to a minimum in an environment where different methods of operation, employment and work status are emerging.
The technology also creates advantages for tax collection as the role of sharing economy platforms gives an opportunity to the tax administration to enhance the methods of enforcing compliance and making administration more efficient.
According to the OECD report the strategy of tax administrations should involve understanding the sharing economy, its business models and main sectors, including the accommodation and transportation sectors. They should assess the need to make changes and clarify their objectives, such as protection of tax revenue and the need to broaden the tax base. The correct administration responses are likely to include a role for sharing economy platforms in sharing their data or collecting the VAT/GST due.
Countries do not need to bring all sharing economy activities within the scope of the VAT or GST, and for those changes that are made a sequenced introduction may be best, focusing first on the sectors where revenue is most at risk. The amendments to the rules should be consistent with the existing system and should not involve new exceptions or special regimes.
Tax administrations must balance the need for protection of revenue with efficiency of collection and a minimum compliance burden. If large numbers of new sharing economy enterprises are brought within the scope of the VAT or GST there will be compliance problems for those businesses and more pressure of work for the tax administration.
Measures that could be introduced by tax administrations include a change in the criteria for requiring a VAT/GST registration or collection threshold; presumptive taxation methods for arriving at a VAT/GST liability; simplified accounting and reporting; split payment or withholding mechanisms; improved use of technology in VAT/GST administration and compliance; strengthening of third-party reporting obligations; and taxpayer education.
The role of digital platforms in the sharing economy can help the tax administration to facilitate compliance with VAT/GST. The new rules could relate to the data reporting obligations for platform operators in relation to the supplies facilitated on their platforms and approaches could be considered to educate sharing economy providers on their VAT/GST obligations. The use of big data can bring greater traceability of economic activity and bring into the tax net economic activity that was previously informal. With the help of third-party data and monitoring of taxpayer behaviour, risk management strategies can be made more effective.
