A New Approach to Taxing Financial Intermediation Services Under a Value Added Tax
July 1, 2004
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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.
Subject: 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
Pages:
19
Volume:
2004
DOI:
Issue:
119
Series:
Working Paper No. 2004/119
Stock No:
WPIEA1192004
ISBN:
9781451854206
ISSN:
1018-5941
