IMF/RMTF Webinar Series on the VAT

Sep 23, 2020 - Mar 16, 2021

The IMF and the RMTF will host a series of virtual events on the VAT in the coming months. The series, comprising four webinars covering different aspects of the VAT, will be short, each running for up to two hours, and targeted at strategic-level VAT issues. The webinars will mainly entail an organized discussion among small panels, leading to an exchange of views and Q&A. 

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Overview

It is time to refocus tax discussions on the fiscal contribution of the VAT. The workhorse of budgets in many countries has been the VAT for decades, and this will continue to be the case in the foreseeable future. However, in many countries, the VAT remains a source of controversy related to VAT policy design and legislation, difficulties in properly managing VAT compliance, and the overall distributional concerns. Key issues to be addressed in the webinars are: what have we learned in the last 20 years; the role of VAT in the post-COVID-19 recovery; equity, efficiency, and administrative complexity; and VAT compliance and administration.

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Objectives

The objectives of the virtual events on the VAT are to: (1) solicit views and feedback on what have we learned in the last 20 years and more recently during the crisis; (2) exchange ideas and engage in discussions on country experiences and new research regarding what could be done differently to address perceived problems in the VAT; and (3) brainstorm on how we can continue improving its efficiency and effectiveness as a collection vehicle going forward.
 

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Webinars

Webinar 1: The VAT Experience
Wednesday, September 23, 2020 | 8am – 10am

Opening remarks (Mr. Vitor Gaspar): The remarks emphasized the importance of the VAT within the financing for development agenda. 

The keynote presentation (Mr. Michael Keen): The presentation provided an overview of key developments and issues about the VAT:

  • Popularity of the VAT has been steadily increasing, new countries are still introducing every year. Accordingly, the share of revenues delivered by the VAT has been increasing across country groups and countries with a VAT tend to raise more revenues.
  • There are good reasons for the popularity of the VAT: it is a growth friendly tax and has built-in safeguards to protect revenue even if the VAT chain breaks. But this assumes that the design remains as intended: broad base, with few or no exemptions or other special treatments. Still, there is a lot of variation across countries, such as in the number of VAT rates and the level of the registration threshold.
  • One of the most persistent questions around the VAT is whether it is regressive, and if there is a way to make it more progressive by adjusting VAT design parameters. Analysis shows that preferential rates actually benefit the better off, and that there are generally more efficient fiscal instruments outside the VAT to benefit poor households and improve redistribution.
  • Some common concerns around the VAT are related to its administration. However, the administration of the VAT is not more complex than that of other taxes and indeed less so than the income tax, the other principal source of revenue for most countries. 
  • Other important design issues include digitalization of the economy, financial sector, VAT in the context of subnational governments, and cross border services, some of which were then discussed by our panel.

Panel discussions (moderated by Ms. Victoria Perry)

Recent issues discussed in the academic literature about the VAT (Ms. Rebecca Millar):  

  • Legal academic literature frequently discusses whether it is possible to keep the VAT simple, considering the increasing complexity of business transactions and digitalization.
  • Legal academics are particularly interested in the issue of VAT fraud, how it is used to break the VAT chain, and how authorities respond to it, while maintaining the integrity of the VAT.
  • Legal academics are also writing about international tax issues for the VAT and digitalization, including the role, if any, of digital platforms. 

EU experience with the VAT (Mr. Patrice Pillet):

  • The EU efforts in the last 20 years focused on VAT harmonization and simplification with a view to fight fraud and support the EU single market. While significant progress has been achieved, the VAT still remains prone to abuse. 
  • VAT revenue generation potential has improved over recent years, but C-efficiency in the EU is rather low.
  • While the adoption of a definitive VAT system for intra-EU trade remains at an impasse, the 2016 VAT Action Plan is more ambitious than that, including allowing member states more flexibility for VAT rate setting, further simplifying VAT for small businesses, and tackling VAT fraud.

Recent reforms in India (Ms. Indira Rajaraman) and Benin (Mr. Nicolas Yenoussi):

  • The VAT can be complex for some countries, but it raises substantial revenues. Issues around design deficiencies in India and the large VAT gap in Benin remain key concerns.
  • The countries also face practical challenges keeping to good VAT design principles, especially in the face of social, economic and political realities, such as in India where there is widespread poverty, or in Benin with its large informal sector.
  • Progressivity via public expenditure is difficult to attain in India, which is why policymakers are looking at the VAT rate structure to address progressivity.
  • The speaker from Benin remarked that VAT is challenging for African countries to administer given the lack of widespread use of standard accounting by businesses, high non-compliance rates and incidence of fraud. 

A lively Q&A session that touched on several important issues:

  • Much discussion on the VAT structure and issues raised by panelists on trying to keep to the principles of a good VAT, versus the political reality in some countries, especially those with widespread poverty, as well as the need to “get it right from the start” to avoid design distortions becoming entrenched.
  • The difficulties faced by developed and developing countries are very different. The main concern for the former is to capture financial and digital transactions, while the challenges arising from the very large informal sectors is of particular concern for the latter. Generally, there was much interest in tools for diagnosing—and countries’ experiences with improving—VAT compliance.
  • Many questions were raised on the regressivity of the VAT. The perception is very different if we look at only the VAT, versus looking at the overall tax and benefit system. There are many, better targeted instruments for the improvement of progressivity in the overall fiscal system, even in poor countries. 
  • The discussion also touched on the disadvantages of relying on the VAT to create incentives for industrial activity – and the desirability of using other instruments, including depreciation, to resist pressures to use the VAT in this way.
  • VAT is a challenge for African countries, given the high level of non-compliance and incidence of fraud, but digitalization also provides opportunities for improving administration and compliance—the Benin experience was illustrative.
  • There are also many challenges faced by small businesses.
  • The EU experience highlighted challenges in dealing with financial sector rules and dealing with e-commerce. 

Answers to technical questions raised during the panel discussion of Webinar 1: “The VAT Experience”

Presentation materials: 

The VAT: An Overview of Developments and Issues (in English)

The VAT: An Overview of Developments and Issues (in French)

The VAT: An Overview of Developments and Issues (in Russian)

The VAT: An Overview of Developments and Issues (in Spanish)

Webinar 2: VAT and COVID-19: Impact, Response, and the New Normal
Tuesday, November 17, 2020 | 8am – 10am

Description: The webinar will discuss the role of VAT in the immediate response to the crisis, the economic recovery, and beyond, i.e., how VAT can mobilize more revenue to finance fiscal consolidation—a high-level look at policy, legislation, and administration issues. It will also look at the VAT design in the new norm following the COVID-19 crisis, and discuss what features of the VAT, if any, might need to be adjusted. Finally, it will explore political economy issues around the VAT in the post-COVID world, including whether the crisis creates an opportunity to undertake bold VAT reforms.

Panelists: The Webinar will start with a keynote presentation by Ms. Vicki Perry on VAT policy and administration responses during the COVID-19 crisis and the role of the VAT in providing stimulus for economic recovery and future fiscal consolidations, followed by a panel, led by Ms. Katherine Baer.

Presentation materials: 

The VAT and COVID-19 (in English)

The VAT and COVID-19 (in French)
 
The VAT and COVID-19 (in Russian)

The VAT and COVID-19 (in Spanish)

Webinar 3: Equity, Efficiency, and Administration of VAT
Tuesday, January 12, 2021 | 8am – 10am

Description: The webinar will explore VAT policy issues, including that of equity and efficiency, and administrative complexity, e.g., stemming from reduced VAT rates and exemptions, cross-border trade and digitalization. It will explore options for improving the VAT design and constraints to do so, including issues of political economy. 
 

Webinar 4: Managing VAT Compliance and Administration
Tuesday, March 16, 2021 | 8am – 10am

Description: The webinar will discuss revenue administration issues, including priorities for effective management of VAT. It will explore experience and lessons learned in managing VAT compliance and administration, including their interaction with VAT design. It will touch on use of tools like RA-GAP, and management of VAT credits and combating VAT fraud.

Opening Remarks Vitor Gaspar Webinar 1