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

Author/Editor:

Howell H Zee

Publication Date:

July 1, 2004

Electronic Access:

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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:

This 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, in conjunction with 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 fully compatible with an invoice-credit VAT and is capable of delivering the correct theoretical result at minimal administrative costs.

Series:

Working Paper No. 04/119

Subject:

English

Publication Date:

July 1, 2004

ISBN/ISSN:

9781451854206/1018-5941

Stock No:

WPIEA1192004

Format:

Paper

Pages:

19

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