The value-added tax reform puzzle

This explores the impact of a tax reform in some provinces of China which eliminated the value-added tax on some investment goods. While the goal of the experiment was to encourage upgrading of technology, the results suggest that there was no evident increase overall in fixed investment, and employment fell significantly in the treated provinces and sectors. The reform reduced the total number of employees for all types of firms. For domestic firms, it reduced employment by almost 8 percent. The results are robust to a variety of approaches, and suggest that the primary impact of the policy has been to induce labor-saving growth. This experiment has since been extended to the rest of China.Taxation&Subsidies,Investment and Investment Climate,Debt Markets,Emerging Markets,Economic Theory&Research

Is the Value Added Tax Naturally Progressive?

A broad based consumption tax, such as a value added tax, is generally considered to be a regressive tax. This conclusion, however, has not taken into account the fact that in developing countries the commodities on which poor households spend most of their income, even if they are included in the legal tax base, are administratively impractical to tax. This paper employs a rich data set on household incomes and expenditures for the Dominican Republic. The data set covers 2042 goods and services purchased by households of different income and consumption levels. It also contains information on the type of establishment from which the items were purchased. With this information, we estimate the effective rate of tax that has been paid on each item purchased by households. These estimations include the effect of the different rates of the tax compliance across households with different expenditure levels. The results of the study show that the burden of the current VAT in the Dominican Republic is progressive over all the quintiles of household expenditure. Furthermore, if the base of the VAT is made comprehensive, the estimated incidence of the burden of the VAT is still progressive over all the quintiles of household expenditure.Value Added Tax, incidence, compliance

The economic psychology of value added tax compliance

VAT is a tax on consumer expenditure, collected on business transactions and assessed on the value added to goods and services. It applies, with some exceptions (for example, to young children’s clothes and shoes in the UK), to all goods and services that are bought and sold. VAT is a general tax (as it applies, in principle, to all commercial activities) and a consumption tax (as it is paid ultimately by the final consumer). It is not actually a tax on business, though some business owners do see it that way. In fact, whilst VAT is paid to the tax authorities by the seller of the goods or services, the tax is paid by the buyer to the seller as part of the tax and so, in essence, businesses are acting as unpaid tax collectors. VAT was first introduced in France in 1954, and subsequently has been extended, through a series of directives, to cover the whole of the European Union (EU). The system in the EU is now reasonably standardized, although different rates of VAT apply in different EU member states. The minimum standard rate in the EU is 15 percent, though lower rates are applied to certain services. Some goods and services are exempt from VAT throughout the EU (e.g., postal services, insurance, betting). In addition to spreading throughout Europe (member states are required to introduce VAT, so the increase in membership of the EU has inevitably increased the number of countries that use this system), VAT has also been introduced in a large number of other countries, notably China (Yeh, 1997), and India (after many delays) in 2005, so that now over 130 countries world-wide operate VAT. In the Caribbean, for example, Belize, Dominica, Guyana, and Antigua have all introduced VAT in the past two years. Other countries have introduced taxes that are classified as value added taxes, such as Australia, which now operates a General Sales Tax (GST). The introduction of VAT has been the major tax reform around the world in the past 25 years, and VAT is now of global significance and impact (Ebrill et al., 2001)

Tinjauan Teoritis Peraturan Pencegahan Value Added Tax Fraud Dan Value Added Tax Evasion

Overall the existing taxation regulations in Indonesia are good enough to prevent the possibility of Value Added Tax Fraud and Value Added Tax Evasion. For each violation committed will be subject to sanctions. Unintentional violations will be subject to administrative sanctions, while intentional violations of Value Added Tax Fraud and Value Added Tax Evasion in addition to administrative sanctions will also be subject to criminal sanctions to provide a deterrent effect. The use of communication and information technology in the tax administration system in the form of e-Invoice and e-SPT for Value Added Tax is very helpful in preventing Value Added Tax Fraud and Value Added Tax Evasion. However, it is necessary to improve policies and regulations so that Value Added Tax Fraud and Value Added Tax Evasion can be minimized even more

The Value Added Tax: Its Causes and Consequences

Almost unknown in 1960, the value added tax (VAT) is now found in more than 130 countries, raises around 20 percent of the world’s tax revenue, and has been the centerpiece of tax reform in many developing countries. This paper explores the causes and consequences of the remarkable rise of the VAT. A key question is whether it has indeed proved, as its proponents claim, an especially effective form of taxation. To address this, it is first shown that a tax innovation—such as the introduction of a VAT—reduces the marginal cost of public funds if and only if it also leads an optimizing government to increase the tax ratio. This observation leads to the estimation, on a panel of 143 countries for 25 years, of a system of equations describing both the probability of VAT adoption and the revenue impact of the VAT. The results point to a rich set of determinants of VAT adoption, this being more likely, for example, if a country has a program with the IMF and the less open it is to international trade. In the revenue equation, the presence of a VAT does indeed have a significant impact, but also a complex one, with a negative intercept effect counteracted by positive effects that are greater the higher are per capita income and, more tentatively, openness. While the sign of the revenue impact of the VAT is thus in general ambiguous, most countries that have adopted a VAT seem to have gained a more effective tax instrument in doing so (though this is less apparent in sub-Saharan Africa), and most without it seem likely to gain from its adoption.Value added tax; tax reform

VALUE ADDED TAX IN THE ECONOMIC CRISIS CONTEXT

This article tries to present the major aspects concerning the value added tax in the context of economic crisis in European Union countries and Romania. The paper realizes an analysis of the impact of economic crises on VAT in the European space underlining the current situation when the revenues from VAT represent a valuable source of financing the public expenditures. In Romania the economic crises has led to increasing o f VAT rate from 19% to 24%. This measure is an important fiscal measure for the state budget and this study tries to reflect the impact of this VAT rate increase on the public revenues and consumption.value added tax, economic crises, tax revenues

Estimating Industry Benchmarks for the Value-Added Tax

In this article, the author outlines the coverage and structure of the Philippines' value-added tax (VAT) on goods and services and discusses the problems in its administration as well as indicators of inefficiency, low effort and evasion that appear to be growing even worse. Making use of the national input-output tables, she constructs industry benchmarks for the VAT to aid the Bureau of Internal Revenue in its audit process--collections within an industry which fall notably short of the benchmark could act as a sort of automatic trigger for government investigation and in the process reduce leakages. Before this can happen, however, industries should be defined to a greater degree to ensure an appropriate level of homogeneity within a given industry category.benchmarks, value added tax

A Value Added Tax in an Oligopolistic Economy

This paper identifies a new mechanism through which value added taxes may influence the degree of competition in oligapolistic markets. The analysis is based on an oligopoly in which firms interact over an indefinite period of time and hence tacitly collude.taxes; competition; enterprises; oligopoly