Comparing the Treatment of Charities Under Value Added Taxes and Retail Sales Taxes
AbstractThis paper compares the treatment of charities under value added taxes (VATs) and retail sales taxes (RSTs) from both a normative and descriptive perspective. There is general agreement that an ideal VAT and an ideal RST would tax supplies or sales in the same way by imposing a uniform levy on all sales to final consumers and relieving businesses of any economic burden from the tax, except the burden of tax collection. Although it may appear desirable to relieve charities’ purchases or sales of a VAT or RST burden to encourage charitable undertakings, attempting to support charities through modification of the VAT or RST creates a number of problems. These include undermining economic neutrality, by distorting input choices, incentivizing self-supply, and frustrating the destination principle; producing negative revenue consequences; fostering “exemption” or “rate reduction” creep; and adding to the complexity of tax administration. Because of these concerns, “best practices” for charities under a VAT or an RST counsel against special treatment within the tax regime itself and favor support of charities through direct government subsidies. In practice, however, most VAT and RST regimes do seek to provide relief for charities within the tax regime. Most VAT regimes treat charities as exempt, imposing no tax on their sales but taxing their purchases without credit or refund for taxes paid. Under the American subnational RST, over half the states with RSTs relieve charities of the burden of paying sales tax and roughly one third exempt charities’ sales from taxation, although many charities’ sales fall outside the scope of the American RST, which generally does not apply to services. As a consequence, VATs and RSTs often give rise to the problems identified above.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Oxford University Centre for Business Taxation in its series Working Papers with number 1102.
Date of creation: 2011
Date of revision:
Contact details of provider:
Postal: Park End Street, Oxford OX1 1HP UK
Phone: +44 (0)1865 288800
Fax: +44 (0)1865 288805
Web page: http://www.sbs.ox.ac.uk/ideas-impact/tax/
More information through EDIRC
This paper has been announced in the following NEP Reports:
- NEP-ACC-2011-02-26 (Accounting & Auditing)
- NEP-ALL-2011-02-26 (All new papers)
- NEP-PBE-2011-02-26 (Public Economics)
- NEP-PUB-2011-02-26 (Public Finance)
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Li Liu).
If references are entirely missing, you can add them using this form.