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Equivalence of the Production and Consumption Methods of Calcuting the Value-Added Tax Base: Application in Zambia

Author

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  • Mr. Anthony J. Pellechio
  • Ms. Catharine Hill

Abstract

Two methods of calculating the value-added tax (VAT) base, using production and consumption data, respectively, have been applied in different countries to estimate VAT revenue. It is not apparent that these methods should produce the same result for a particular country because each method requires different adjustments for exemptions. This paper establishes analytically the equivalence of the two methods. Both methods are applied to Zambia. Given the limitations of data, the two methods produce different results, yielding an estimated range for VAT revenue of 2-3 percent of GDP in 1995. Actual VAT revenue collected fell within this range.

Suggested Citation

  • Mr. Anthony J. Pellechio & Ms. Catharine Hill, 1996. "Equivalence of the Production and Consumption Methods of Calcuting the Value-Added Tax Base: Application in Zambia," IMF Working Papers 1996/067, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1996/067
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    References listed on IDEAS

    as
    1. Aguirre, Carlos A. & Shome, Parthasarathi, 1988. "The Mexican Value-Added Tax (VAT): Methodology for Calculating the Base," National Tax Journal, National Tax Association;National Tax Journal, vol. 41(4), pages 543-554, December.
    2. Mr. George A Mackenzie, 1991. "Estimating the Base of the Value-Added Tax (VAT) in Developing Countries: The Problem of Exemptions," IMF Working Papers 1991/021, International Monetary Fund.
    3. Aguirre, Carlos A. & Shome, Parthasarathi, 1988. "The Mexican Value-Added Tax (VAT): Methodology for Calculating the Base," National Tax Journal, National Tax Association, vol. 41(4), pages 543-54, December.
    4. Tait, Alan A, 1992. "A Not-So-Simple Alternative to the Income Tax for Socialist Economies in Transition: A Comment on McLure," The World Bank Research Observer, World Bank, vol. 7(2), pages 239-248, July.
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