Estimating the Base of the Value-Added Tax (VAT) in Developing Countries: The Problem of Exemptions
February 1, 1991
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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
Pages:
18
Volume:
1991
DOI:
Issue:
021
Series:
Working Paper No. 1991/021
Stock No:
WPIEA0211991
ISBN:
9781451921465
ISSN:
1018-5941
