Budget shortfalls force consideration of a VAT, accounting firm finds

A new study by the accounting firm KPMG predicts the economic downturn will force governments to move quickly in implementing an indirect tax like the Value-Added-Tax (VAT) to make up for budget shortfalls.  

"The slow economy and falling direct-tax rates are causing many governments worldwide to tighten their existing indirect-tax regimes or introduce new ones," said Frank Sangster, a KPMG principal, in prepared remarks. 

"Here in the United States, we're seeing VAT discussed more as a potential means to raise revenue and help reduce the federal deficit," he added. The study comes on the heels of former Fed Chairman Paul Volcker saying new taxes such as a VAT or carbon tax might be needed because changes to the current tax system won't solve the country's debt problem.

A number of high-growth markets, like China and India, are looking at the VAT to generate needed revenue, KMPG found. The EU, which already has a VAT, is looking to enhance the tax to raise more revenue and fund other policy objectives, the study stated.