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A New Approach to Taxing Financial Intermediation Services Under a Value Added Tax

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Author Info

  • Howell H. Zee

Abstract

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.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 04/119.

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Length: 19
Date of creation: 01 Jul 2004
Date of revision:
Handle: RePEc:imf:imfwpa:04/119

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Related research

Keywords: Value added tax; Taxation; Financial systems;

This paper has been announced in the following NEP Reports:

References

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  1. Glenn Jenkins & Rup Khadka, 1998. "Value Added Tax Policy And Implementation In Singapore," Development Discussion Papers 1998-02, JDI Executive Programs.
  2. Poddar, Satya & English, Morley, 1997. "Taxation of Financial Services Under a Value-Added Tax: Applying the Cash-Flow Approach," National Tax Journal, National Tax Association, vol. 50(1), pages 89-111, March Cit.
  3. Harry Huizinga, 2002. "A European VAT on financial services?," Economic Policy, CEPR & CES & MSH, vol. 17(35), pages 497-534, October.
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Citations

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Cited by:
  1. Peter Dungan & Jack Mintz & Finn Poschmann & Thomas Wilson, 2008. "Growth Oriented Sales Tax Reform for Ontario: Replacing the Retail Sales Tax with a 7.5 Percent Value-Added Tax," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 273, September.

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