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A new approach to financial VAT

Author

Listed:
  • Julio López-Laborda

    (University of Zaragoza, Department of Public Economics, Universidad de Zaragoza)

  • Guillermo Peña

    (University of Zaragoza, Department of Public Economics,)

Abstract

Many methods of taxing financial services have been developed in recent decades, but so far, none of them is definitive. The cash-flow method, considered one of the most theoretically accurate approaches, has turned out not to be viable. The purpose of this article is to propose a new approach to taxing financial services that would be theoretically accurate and could be applied practically across countries. We develop an approach called the “mobile-ratio” method that taxes financial transactions using a rate that obtains, roughly, full taxation of the value added by financial services. The simple, neutral method generated can easily be administered by entities. This paper will be useful for public economists and policy-makers in order to raise tax revenue and improve economic efficiency and neutrality.

Suggested Citation

  • Julio López-Laborda & Guillermo Peña, 2016. "A new approach to financial VAT," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1606, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    • Handle: RePEc:ays:ispwps:paper1606
    as

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    File URL: http://icepp.gsu.edu/files/2016/04/working-paper-16-06-reading.pdf
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    References listed on IDEAS

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    1. Michael Keen, 2013. "The Anatomy of the Vat," National Tax Journal, National Tax Association;National Tax Journal, vol. 66(2), pages 423-446, June.
    2. (IFS), Institute for Fiscal Studies & Mirrlees, James (ed.), 2011. "Tax By Design: The Mirrlees Review," OUP Catalogue, Oxford University Press, number 9780199553747.
    3. Paul Johnson & Gareth Myles, 2011. "The Mirrlees Review," Fiscal Studies, Institute for Fiscal Studies, vol. 32(3), pages 319-329, September.
    4. 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.
    5. Zee, Howell H., 2005. "A New Approach to Taxing Financial Intermediation Services Under a Value–Added Tax," National Tax Journal, National Tax Association;National Tax Journal, vol. 58(1), pages 77-92, March.
    6. Glenn Jenkins & Rup Khadka, 1998. "Tax Reform In Singapore," Development Discussion Papers 1998-03, JDI Executive Programs.
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    Cited by:

    1. López-Laborda, Julio & Peña, Guillermo, 2017. "Does financial VAT affect the size of the financial sector?," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 11, pages 1-28.

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    Keywords

    Financial VAT exemption; mobile-ratio method;

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