Designing a Progressive VAT
IMF Working Papers, April 5, 2024
Source details
- Canonical URL
- Designing a Progressive VAT
Other formats
Bibliographic details
- Authors: Artur Swistak, Rita de la Feria
- Published: April 5, 2024
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400271830.001
Summary
- Proposes a progressive VAT: a single-rate, broad-base, VAT, whereby tax paid on consumption is re-paid to lower income households in real-time, at the moment of purchase.
- Aims to effectively eliminate regressivity while minimizing political economy, cash-flow, and welfare stigma obstacles associated with standard welfare transfers used in modern VAT systems.
- Highlights additional significant advantages, particularly in terms of compliance incentives.
Key findings and features
- Design: single-rate, broad-base VAT combined with real-time repayment to lower income households at the moment of purchase.
- Distributional impact: can effectively eliminate VAT regressivity.
- Political economy and administrative advantages:
- Minimizes political economy obstacles.
- Minimizes cash-flow obstacles for beneficiaries.
- Minimizes welfare stigma associated with transfers.
- Compliance incentives: the progressive VAT design would have significant advantages in terms of compliance incentives.
Policy implications and recommendations
- Adopt a progressive VAT structure that retains a single rate and broad base while delivering targeted relief through real-time repayment at point of purchase.
- Replace or supplement standard welfare transfers to avoid cash-flow delays and stigma, and to improve administrative simplicity and acceptance.
- Leverage the compliance benefits of the design to strengthen VAT performance.
Publication and metadata
- Authors: Artur Swistak, Rita de la Feria
- Publication date: April 5, 2024
- Series: Working Paper No. 2024/078
- Issue: 078
- Volume: 2024
- Pages: 31
- DOI: https://doi.org/10.5089/9798400271830.001
- Stock No: WPIEA2024078
- ISBN: 9798400271830
- ISSN: 1018-5941
- Subjects: Consumption, Consumption taxes, Income, Income distribution, National accounts, Taxes, Value-added tax
- Keywords: Consumption, Consumption taxes, Global, Income, Income distribution, la Feria, stigma obstacle, Value-added tax, VAT design, VAT incidence, VAT system
- Additional note: IMF eLibrary offers over 25,000 IMF publications in multiple formats.
IMF Working Paper — Designing a Progressive VAT (Artur Swistak and Rita de la Feria), April 5, 2024.
Content in this bundle
- Working Paper