The VAT in Developing and Transitional Countries by Richard Bird, Pierre-Pascal Gendron

By Richard Bird, Pierre-Pascal Gendron

VAT is an important tax in so much constructing and transitional nations. This publication attracts on quite a lot of adventure and learn to debate a variety of conceptual and functional matters regarding VAT in a manner that's suitable either to scholars and to tax practitioners and officers around the globe. It updates, extends, and amends the one related book-length remedy, the fashionable VAT, an authored paintings released by way of the foreign financial Fund in 2001.

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At the end of each tax period the government must (so to speak) pay back input tax credits so the net flow of revenue to government depends entirely on the amount that is collected on the final sales – that is, ‘sales to others than VAT registrants’ – taking place in the economy in that period (OECD 1988). If the VAT payment period is identical to the normal commercial payment period, as is often the case, and the level of activity of VAT taxpayers is constant over time, the same arithmetic applies even in the case of a single VAT taxpayer: neither the taxpayer nor the government gains or loses in revenue terms by moving to a VAT.

29 It is unfortunate that so few attempts have been made to measure the real trade-offs in such design decisions. Much the same can be said about VAT compliance costs. While many studies have attempted to measure these costs in a few (mainly developed) countries (Hasseldine 2005), it is by no means obvious what, if anything, one can or should learn from such studies with respect to VAT design and administration in developing and transitional countries. Why, for instance, is the now standard advice for high thresholds in such countries (Keen and Mintz 2004) – advice that is based at least in part on the common finding of compliance cost studies with respect to the relatively much higher costs imposed on smaller firms – so generally ignored?

The same concern arises under VAT because a registered firm can make a false claim for input tax credits. Due and Mikesell (1994, chap. S. states and its widely varying importance in revenue terms. Due and Mikesell (1994, chap. 3) discuss state treatment of production inputs in detail. 18:21 P1: KNP 9780521877657c03 CUNY898/Bird 978 0 521 87765 7 The Economics of Tax Choice July 17, 2007 37 RST he or she has paid on various inputs. The firm in turn incorporates this additional $100 in its cost base in determining the price it charges for its own product, assuming it can pass the tax on fully.

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