A New Approach to Taxing Financial Intermediation Services Under a Value Added Tax

IMF Working Papers, July 1, 2004

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Canonical URL: A New Approach to Taxing Financial Intermediation Services Under a Value Added Tax

The paper contains a proposal referred to as the "modified reverse-charging" approach to tax financial intermediation services under a VAT.
At the heart of the proposal is the application of a reverse charge that shifts the collection of the VAT on deposit interest from depositors to banks.
The proposal includes the establishment of a franking mechanism managed by banks that effectively transfers the VAT so collected to borrowers as credits against the VAT on their loan interest on a transaction-by-transaction basis.
The proposal is described as fully compatible with an invoice-credit VAT and capable of delivering the correct theoretical result at minimal administrative costs.

Compatibility: fully compatible with an invoice-credit VAT.
Outcome: capable of delivering the correct theoretical result at minimal administrative costs.

Author: Howell H Zee
Date: July 1, 2004
Series: Working Paper No. 2004/119
Issue: 119
Volume: 2004
Pages: 19
DOI: https://doi.org/10.5089/9781451854206.001
Stock No: WPIEA1192004
ISBN: 9781451854206
ISSN: 1018-5941
Subjects: Banking, Credit, Economic sectors, Financial institutions, Financial sector, Financial services, Loans, Money, Taxes, Value-added tax
Keywords: Credit, credit chain, Financial sector, financial services, Global, invoice, invoice-credit VAT, loan, Loans, tax, Value-added tax, VAT, VAT burden, VAT invoice, VAT rate, WP

IMF Working Papers — "A New Approach to Taxing Financial Intermediation Services Under a Value Added Tax", Howell H Zee, July 1, 2004.

_wp04119 — Modified Reverse-Charging Approach to Taxing Deposit and Loan Interest
- _wp04119 — Modified Reverse-Charging Approach to Taxing Deposit and Loan Interest (Markdown version)
- _wp04119 — Modified Reverse-Charging Approach to Taxing Deposit and Loan Interest (PDF)