Estimating the Base of the Value-Added Tax (VAT) in Developing Countries: The Problem of Exemptions

February 1, 1991

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George A Mackenzie. Estimating the Base of the Value-Added Tax (VAT) in Developing Countries: The Problem of Exemptions, (USA: International Monetary Fund, 1991) accessed September 19, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Developing countries with VATs typically exempt a large number of goods and services. Following a brief discussion of the rationale for exemptions, this paper presents a formula for the base of a VAT with exemptions. Two basic adjustments must be made to the base without exemptions: subtraction of the value of sales to consumers of exempt industries and addition of intermediate sales of taxable inputs to exempt industries. The paper concludes with a derivation of the elasticity of a VAT with exemptions with respect to aggregate consumption and a discussion of the implications of technological change for the VAT base.

Subject: Consumption, Consumption taxes, Effective tax rate, National accounts, Tax policy, Taxes, Value-added tax, VAT exemptions

Keywords: Capital goods, Consumption, Consumption taxes, Consumption-type VAT, Effective tax rate, Intermediate sale, N products, Tax liability, Taxed goods, Value-added tax, VAT base, VAT exemptions, WP

Publication Details

Pages:

18
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1991/021
Stock No:

WPIEA0211991
ISBN:

9781451921465
ISSN:

1018-5941

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