While it’s a safe bet that most finance execs prefer lower tax rates to higher ones, many also are saying that a stable tax code is critical in driving the economy forward. That’s according to a recent survey of more than 3,300 members of KPMG’s Tax Governance Institute (TGI), which is made up of CFOs, tax execs, board members and others.
In fact, one-third of the survey respondents indicated that more tax certainty for both businesses and individuals would have the most significant impact on the economy. In comparison, one-quarter said the European bank crisis would impact the U.S. economy, while thirteen 13% named the Chinese economy.
To be sure, it’s hard to assert that the tax code has ever offered a tremendous amount of certainty. However, the scope of the uncertainty seems to have ratcheted up over the past few years. For instance, although the need to change the way in which corporate income is taxed is widely recognized, “what we should do is up in the air,” says Hank Gutman, principal and director with the TGI. “There is no consensus on the solution.”
Complicating things is the fact that such a large portion of business income in the U.S. – about 70%, Gutman says – is taxed on a pass-through basis and thus according to the provisions in the tax code that deal with individual income, “there’s an inextricable connection between business and individual taxation.” And, both sections of the tax code seem to be continually fluctuating.
The upshot? “It creates an atmosphere in which serious planning is difficult to do,” Gutman says.
Moreover, most executives sound pessimistic about the likelihood of tax reform any time soon. One-fifth of respondents said such reform won’t occur until 2014, while 42% predicted it wouldn’t occur until 2015.
It may be small consolation, but the U.S. isn’t alone in having an uncertain tax climate. About half of those responding to the EMEA Tax Certainty Survey, a 2012 report by Deloitte, said tax uncertainty in their countries impacts or even damages their businesses. The responses varied significantly by country: 78% of Portuguese respondents said this was the case, versus 24% of the Dutch.
On the other hand, 80% of the Swiss respondents said that the tax certainty in their country actually was greater than in any other EMEA countries. Just 5% of the Czech respondents indicated they felt the same.
The largest contributor to tax uncertainty in the EMEA cited in the Deloitte survey might sound familiar to finance execs in the U.S.: frequent changes to legislation, which was mentioned by 28% of respondents. The next most common responses were the excessive length of tax disputes, and weakness or reversals in publicly available tax guidance, both of which were mentioned by 12% of respondents.