Book

Value added tax: A comparative approach, second edition

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Abstract

This book integrates legal, economic, and administrative materials about the value added tax (VAT) to present the only comparative approach to the study of VAT law. The comparative presentation of this volume offers an analysis of policy issues relating to tax structure and tax base as well as insights into how cases arising out of VAT disputes have been resolved. Its principal purpose is to provide comprehensive teaching tools - laws, cases, analytical exercises, and questions drawn from the experience of countries and organizations around the world. This second edition includes new VAT-related developments in Europe, Asia, Africa, and Australia and adds new chapters on VAT avoidance and evasion and on China’s VAT. Designed to illustrate, analyze, and explain the principal theoretical and operating features of value added taxes, including their adoption and implementation, this book will be an invaluable resource for tax practitioners and government officials.
... "In recent times the VAT has received wide acclaim as a fruitful source of revenue with relatively low administrative and economic costs." (Schenk, 2007) For instance, fiscal economists argue for the justification of the VAT on three predominant theoretical grounds: (a) It is a neutral tax (b) It removes cascading (c) It achieves zero-rating of exports (Schenk, 2007) The VAT is thus intended to tax spending "comprehensively, neutrally and efficiently." (Schenk, 2007) The VAT is used widely in both developed and developing nations and is adopted at the local, sub national, national, and even supra-national (e.g., ...
... "In recent times the VAT has received wide acclaim as a fruitful source of revenue with relatively low administrative and economic costs." (Schenk, 2007) For instance, fiscal economists argue for the justification of the VAT on three predominant theoretical grounds: (a) It is a neutral tax (b) It removes cascading (c) It achieves zero-rating of exports (Schenk, 2007) The VAT is thus intended to tax spending "comprehensively, neutrally and efficiently." (Schenk, 2007) The VAT is used widely in both developed and developing nations and is adopted at the local, sub national, national, and even supra-national (e.g., ...
... (Schenk, 2007) For instance, fiscal economists argue for the justification of the VAT on three predominant theoretical grounds: (a) It is a neutral tax (b) It removes cascading (c) It achieves zero-rating of exports (Schenk, 2007) The VAT is thus intended to tax spending "comprehensively, neutrally and efficiently." (Schenk, 2007) The VAT is used widely in both developed and developing nations and is adopted at the local, sub national, national, and even supra-national (e.g., ...
... Value Added Tax (VAT) is a type of consumption tax [1] and an indirect tax invented in France [2] that must be paid whenever value is added from production to ultimate sale. VAT is a type of utilization charge [3], although it is borne by end users. ...
Article
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This paper represents an outline of the contribution of Value Added Tax (VAT) in Bangladesh in association with the GDP growth rate, the annual budget amount, and total government revenues from the beginning of vat introduction in Bangladesh. We constructed a correlation matrix using the Pearson and Spearman correlation methods, which was then visualized using a Heatmap to visualize the relationship between the variables. To evaluate the association among the variables, three hypotheses have been set and tested using ANOVA, Pearson correlation, and Spearman correlation. The data set have been developed from secondary sources combing the data of VAT revenues, GDP growth rate, the annual budget amount, and total government revenues from the very beginning of VAT's introduction in Bangladesh (1991-2020) to complete the study and test statistical models. According to our findings, VAT makes a significant contribution to government income generation, resulting in the coverage of budgeted revenues and contributing to consistent GDP growth. VAT, as an indirect tax, is now seen as a powerful fiscal weapon to meet the government's ever-increasing demand for revenues to support all development programs for countries transitioning from least developed to developing. VAT has a strong significant correlation with the annual budget amount, but no positive association with GDP growth rate or total governmental revenues, according to Pearson, Spearman, and ANOVA model findings. VAT can play a vital role in sustaining government internal revenue sources by bordering the basic tax base.
... The basic principle of the VAT system is defined in the VAT Directive in Article 1 stipulating that all goods and services are subject to a general consumption tax in an exact proportion (equal to the applicable VAT rate) to the price of the commodity or service regardless the amount of transactions carried out in the chain before the final consumption (Tait, 1988). Apart from the exceptions listed in the VAT Directive or in the national legislation of the EU Member States, each transaction is subject to the VAT calculated from the price of the goods or services using the applicable rates (Schenk et al., 2015). Each taxpayer is obliged to pay a tax liability equal to tax imposed on his "output" supplies of goods and services after the deduction of the tax directly incurred by him on all cost elements setting the price of goods or services supplied by him (Terra and Kajus, 2015). ...
Article
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Although, the VAT contributes significantly to tax revenues in all EU Member States, the current VAT system is vulnerable to organized fraud schemes and suffers from large scale tax evasion. The EU Member States and the European Commission are discussing new ways of VAT collection to prevent the evasive and fraudulent practices. This paper aims at the description of different VAT collection methods including their flaws and benefits that are addressed in the available literature. The conclusion is that reverse charge and split payment method are changing the character of the VAT system. The One stop shop system is lacking trust of the EU member states. Therefore, the recommendation is to improve current system by electronic means of reporting.
... VAT belongs among to the indirect taxes, it is a part of the price of goods or supplied services (James & Nobes, 2016). Unlike excise duties or energy taxes that are levied only on the selected commodities, VAT belongs to the universal or general taxes (Schenk, Thuronyi & Cui, 2015). The ad valorem tax, among which VAT is ranked, are determined usually by a percentage of the price from the tax base that is expressed in monetary units (Široký, 2015). ...
Conference Paper
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The volume of receivables of business entities recorded an increase, especially in times of economic crisis. The government of the Czech Republic, similar to legislators in other selected European Union Member States, used the opportunity of the Council Directive on the common system of value added tax and implemented a provision into their legislation that allows creditors to get at least the value added tax, which they had to pay during the supply of goods or services for receivables from debtors in insolvency proceedings, respectively in the bankruptcy. The aim of this paper is to analyze the interdependencies between selected indicators of insolvency and corrections of the amount of value added tax in case of receivables from debtors in insolvency proceedings using methods of correlation analysis. The result of the analysis indicates downward trend of number of submitted insolvency proceedings, both for companies and for natural persons. The analysis confirmed the existence of a high degree of dependence between the number of submitted insolvency proceedings and the number of bankruptcies among companies. The high degree of dependence exists in conditions of the Czech Republic also among the number of bankruptcies among companies and the number of bankruptcies among self-employed persons. In relation to VAT there were found mostly negative dependencies on different degrees, the highest number is in the case of VAT returns with non-zero row enabling the correction of the VAT and the number of insolvency proceedings.
... Insurance services are types of services that are not subject to VAT as they contain social and ethical elements, while supporting services of insurance are types of services subject to VAT 4 . According to previous study, life insurance remains exempt from VAT for the reason that it is difficult to extract the value added from implicit margins related to the savings component of life insurance on a transactional basis 5 . ...
... In order not to distort the conditions of the internal market, the harmonization of value added tax within the European Union is on a high level (Schenk, Thuronyi and Cui, 2015). By contrast, the field of direct taxation, which also has a connection with a growing number of European companies, is subject to tax competition (Hakalová, Palochová and Pšenková, 2016). ...
Conference Paper
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European Union Value Added Tax Directive allows the Member States to include into their national legislation the possibility for the creditors to correct the amount of output tax in case that their debtors are in insolvency. The supplier is generally required to include the carried out transaction into revenues and has the obligation to account for relevant output tax in the moment of the chargeable event, regardless of whether the transaction was paid. The special provision of law was introduced into legislation as anti-crisis measure within the European Union. The aim of the paper is to evaluate by using the correlation analysis the interdependencies between selected indicators related to insolvency and the amount of value added tax correction in case of debtors in insolvency proceedings. The results of the analysis showed the most significant dependence between the percentage of receivables for which the correction of the output tax was made from the total value of receivables and the percentage of required tax correction which was actually returned by the debtor to the state budget.
Article
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El presente artículo tiene como objetivo desarrollar una herramienta metodológica para evaluar el desempeño de la cadena de suministro sostenible mediante un índice integral. La metodología consta de cinco pasos, enfocada en procesos, y utiliza métodos como análisis de ciclo de vida y jerarquías analíticas o de Saaty (con base en múltiples criterios). Los criterios considerados fueron productividad, servicio al cliente, valor agregado, ecoeficiencia y rentabilidad. La metodología y el índice integral fueron aplicados a una cadena de suministro de contadores de energía eléctrica. Se consideraron las dimensiones económica, ambiental y social. Como resultado esencial, se obtuvo un mejoramiento de la sostenibilidad de la cadena estudiada, lo que demostró la novedad y la factibilidad de aplicación de esta herramienta.
Article
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Background Global prevalence of overweight and obesity are alarming. For tackling this public health problem, preventive public health and policy actions are urgently needed. Some countries implemented food taxes in the past and some were subsequently abolished. Some countries, such as Norway, Hungary, Denmark, Bermuda, Dominica, St. Vincent and the Grenadines, and the Navajo Nation (USA), specifically implemented taxes on unprocessed sugar and sugar‐added foods. These taxes on unprocessed sugar and sugar‐added foods are fiscal policy interventions, implemented to decrease their consumption and in turn reduce adverse health‐related, economic and social effects associated with these food products. Objectives To assess the effects of taxation of unprocessed sugar or sugar‐added foods in the general population on the consumption of unprocessed sugar or sugar‐added foods, the prevalence and incidence of overweight and obesity, and the prevalence and incidence of other diet‐related health outcomes. Search methods We searched CENTRAL, Cochrane Database of Systematic Reviews, MEDLINE, Embase and 15 other databases and trials registers on 12 September 2019. We handsearched the reference list of all records of included studies, searched websites of international organisations and institutions, and contacted review advisory group members to identify planned, ongoing or unpublished studies. Selection criteria We included studies with the following populations: children (0 to 17 years) and adults (18 years or older) from any country and setting. Exclusion applied to studies with specific subgroups, such as people with any disease who were overweight or obese as a side‐effect of the disease. The review included studies with taxes on or artificial increases of selling prices for unprocessed sugar or food products that contain added sugar (e.g. sweets, ice cream, confectionery, and bakery products), or both, as intervention, regardless of the taxation level or price increase. In line with Cochrane Effective Practice and Organisation of Care (EPOC) criteria, we included randomised controlled trials (RCTs), cluster‐randomised controlled trials (cRCTs), non‐randomised controlled trials (nRCTs), controlled before‐after (CBA) studies, and interrupted time series (ITS) studies. We included controlled studies with more than one intervention or control site and ITS studies with a clearly defined intervention time and at least three data points before and three after the intervention. Our primary outcomes were consumption of unprocessed sugar or sugar‐added foods, energy intake, overweight, and obesity. Our secondary outcomes were substitution and diet, expenditure, demand, and other health outcomes. Data collection and analysis Two review authors independently screened all eligible records for inclusion, assessed the risk of bias, and performed data extraction.Two review authors independently assessed the certainty of the evidence using the GRADE approach. Main results We retrieved a total of 24,454 records. After deduplicating records, 18,767 records remained for title and abstract screening. Of 11 potentially relevant studies, we included one ITS study with 40,210 household‐level observations from the Hungarian Household Budget and Living Conditions Survey. The baseline ranged from January 2008 to August 2011, the intervention was implemented on September 2011, and follow‐up was until December 2012 (16 months). The intervention was a tax ‐ the so‐called 'Hungarian public health product tax' ‐ on sugar‐added foods, including selected foods exceeding a specific sugar threshold value. The intervention includes co‐interventions: the taxation of sugar‐sweetened beverages (SSBs) and of foods high in salt or caffeine. The study provides evidence on the effect of taxing foods exceeding a specific sugar threshold value on the consumption of sugar‐added foods. After implementation of the Hungarian public health product tax, the mean consumption of taxed sugar‐added foods (measured in units of kg) decreased by 4.0% (standardised mean difference (SMD) −0.040, 95% confidence interval (CI) −0.07 to −0.01; very low‐certainty evidence). The study was at low risk of bias in terms of performance bias, detection bias and reporting bias, with the shape of effect pre‐specified and the intervention unlikely to have any effect on data collection. The study was at unclear risk of attrition bias and at high risk in terms of other bias and the independence of the intervention. We rated the certainty of the evidence as very low for the primary and secondary outcomes. The Hungarian public health product tax included a tax on sugar‐added foods but did not include a tax on unprocessed sugar. We did not find eligible studies reporting on the taxation of unprocessed sugar. No studies reported on the primary outcomes of consumption of unprocessed sugar, energy intake, overweight, and obesity. No studies reported on the secondary outcomes of substitution and diet, demand, and other health outcomes. No studies reported on differential effects across population subgroups. We could not perform meta‐analyses or pool study results. Authors' conclusions There was very limited evidence and the certainty of the evidence was very low. Despite the reported reduction in consumption of taxed sugar‐added foods, we are uncertain whether taxing unprocessed sugar or sugar‐added foods has an effect on reducing their consumption and preventing obesity or other adverse health outcomes. Further robustly conducted studies are required to draw concrete conclusions on the effectiveness of taxing unprocessed sugar or sugar‐added foods for reducing their consumption and preventing obesity or other adverse health outcomes.
Article
Some countries have introduced receipt-based tax lotteries (value-added tax (VAT) lotteries) in recent years in an effort to improve tax compliance. This acknowledges that the traditional method of tax compliance enforcement through audits, fines and penalties alone may no longer be optimal. The idea of a VAT lottery is to incentivise consumers to ask for a receipt when paying for goods or services, which serves as a lottery ticket that gives the consumer an opportunity to win a prize. The decline in tax compliance globally poses a threat to revenue collection and, ultimately, to governments’ ability to meet their spending commitments. Other countries, but particularly South Africa, may benefit from implementing a VAT lottery to assist in improved VAT collection. This study aims to analyse VAT lotteries that have been implemented across the world – particularly in the European Union (EU) member countries – through a systematised review in order to determine whether such a lottery could improve taxpayer compliance in South Africa. Of the six EU member countries analysed in detail, four showed a decrease in the VAT gap in the years following the VAT lottery implementation. VAT gap data post-implementation was not available for two of the countries. Positive results include an increase in the number of vendors reported for refusing to issue invoices, a reduction in the number of non-validated receipts, and increased VAT collection. The finance ministers of two countries, and the Ministry of Finance of another, publicly declared the VAT lotteries successful.
Article
This contribution aims at providing both a current example of how a collaboration in tax matters between economists and lawyers could be highly beneficial in tax matters and how fundamental values can step up in this conversation. In particular, the following analysis focuses on the exemptions for public interests listed in Article 132 of the EU Value Added Tax Directive (from now on VAT Directive) which refer to some of the traditional merit goods as so considered by economists. The same exemptions could be also read under the light of the European Fundamental Rights Charter which covers not only civil and political rights but also socio-economic ones. Moreover, since the entry into force of the Lisbon Treaty, we can find “social justice” as one of the core values that the Union is committed to promote and which therefore should guide the Union’s policies. However, economic studies have shown that there might be some downsides to the adoption of VAT exemptions, especially in terms of social and redistributive goals. VAT exemptions aimed at ensuring those merit goods/fundamental rights might erode the tax base and backlash on the wider goal of social justice. From a legal perspective, they lead to several interpretative issues. In spite of its theoretical interest and practical importance, there is still not too much literature on this topic and none addressing this issue from a fundamental rights and values perspective. The purpose of this paper is to be a starting point for further discussions on how economic and legal studies together can provide better solutions on how to handle merit goods in VAT by keeping in mind the broader picture of a fair tax system and legal principles, such as those enshrined in the Charter of Fundamental Rights of the European Union.
Article
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The difference between consideration and income is relevant for VAT purposes. A supply of goods or a provision of services is subject to VAT if it is carried out for consideration. An activity is economic when it is carried out for the purposes of obtaining income on a continuing basis. Supplying goods or services for consideration does not mean that such an activity is economic for VAT purposes and the person who carries it out is a taxable person. To this end, income has to be yielded from the activity. The Court of Justice of the European Union has recently addressed the issue of the difference between income and consideration in two similar cases. Starting from these cases, the article analyses the concepts of consideration, economic activity and taxable person, and their mutual relationships, with a view to explaining when carrying out transactions for consideration gives rise to an economic activity relevant for VAT purposes and, as a consequence, the person who runs the activity becomes a VAT taxable person.
Chapter
Taxes are compulsory, unrequited payments to government. This chapter discusses the goals of taxation and provides an introduction to the most important taxes: taxes on income, taxes on goods and services, and taxes on property. Furthermore, the chapter offers insights to procedural issues of taxation and, finally, highlights the challenges that globalization poses to taxation in an international context.
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Little has been written about the treatment of agriculture under the value added tax (VAT). This article attempts to fill the void by surveying and evaluating the situation in the Member States of the European Union (EU) and some other countries. Farmers are often exempted from VAT for administrative and political reasons. But this means that the VAT on their inputs cannot be ‘washed out’ through the tax deduction/credit mechanism. It then has to be borne by the farmers themselves or becomes an indeterminate and capricious element in consumer prices. To compensate farmers for the uncompensated VAT on inputs, the EU has devised a flat-rate scheme that permits them to charge a presumptive rate (approximately equal to the effective VAT rate on sector-wide inputs) on their sales to taxable agro-processing firms which, in turn, are permitted to take a deduction for this flat-rate addition from the VAT on their sales. Obviously, the flat-rate scheme is an arbitrary way of trying to achieve equal treatment between exempt and taxable farmers and between exempt farm products and other taxable goods and services. Full taxation, subject to the general threshold, appears to be the preferred choice.
Article
This is the protocol for a review and there is no abstract. The objectives are as follows: To assess the effects of taxation of unprocessed sugar or sugar-added foods in the general population on the: consumption of unprocessed sugar or sugar-added foods; prevalence and incidence of overweight and obesity; and prevalence and incidence of diet-related health conditions.
Article
VAT is an important but at the same time long neglected issue in social policy literature. The way in which taxes are levied has important implications for citizens in terms of equity and efficiency effects. Rate diversification is embedded in VAT planning across the EU, which enables Member States to address particular welfare objectives and tackle VAT’s regressivity. Nonetheless, for some, this undermines the uniformity and effectiveness of a pan-European VAT system comprised of the so-called ideal single-rate VAT structure which could bring more money into state budgets and, thus, allow for more generous welfare provision. This paper evaluates arguments put forward by both sides, concluding that in times of crisis, where governments might advance VAT streamlining purely in order to deal with deficit constraints instead of fairer redistribution, the regime currently in place is the most pragmatic solution from a pro-welfare perspective.
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This paper takes the southeast coastal real estate listed enterprises that have been at the forefront of China’s reform for many years as the research object. Through theoretical analysis and descriptive statistical analysis, it studies the impact of the reduction of VAT (value-added tax) rate in 2019 on the southeast coastal listed real estate enterprises from the perspectives of sales revenue, costs, tax burden, profit, and cash flow. The overall operating tax rate has shown a volatile downward trend; the average operating income level has shown a volatile upward trend; the purchase cost has decreased slightly and the change was not significant; the total profits of enterprises have shown a cyclical upward trend. Due to the impact of the real estate purchase restriction policy and financing environment in recent years, the reduction of tax rate has an effective but not significant impact on the enterprise cash flow. Overall, the tax rate reduction still has a positive impact on enterprises. Combined with the problems in the process of policy implementation, this paper puts forward that those enterprises should make scientific and reasonable tax planning, pay attention to the management of purchase and sales contracts and the mode of cooperation with upstream enterprises, regulate taxation to reduce tax-related risks, improve the management level of enterprises, and establish an industry finance integration system. At the national policy level, there is limited room and effect for the reduction of the VAT rate, and more preferential tax relief policies should be given directly, not limited to VAT, but can be extended to corporate income tax. In this way, that could improve the effectiveness of the tax reduction policy in the southeast coastal real estate industry and provide a reference for relevant industries in other regions to solve similar problems.
Article
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The main goal of this paper is to provide an analysis of the relationships among selected indicators of economic activity of regions (GDP, unemployment) and regional tax revenues obtained from taxes imposed on economic activity (VAT, income taxation) in the Czech Republic, with a detailed analysis of VAT. Our methodology is based on correlation analysis (both the Pearson’s and the Spearman’s correlation coefficients) using data from the official statistics of the Czech Republic. The main idea of the paper is that regional tax revenues should give us a picture of the economic activity of companies, residents and entrepreneurs in these regions. Based on the results, we can say that there is a statistically significant positive relationship between regional VAT revenues and the value of regional GDP, and a statistically significant negative relationship between regional income taxes revenues and regional unemployment.
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The Czech Republic is a typical representative EU Member State which has several times changed VAT rates during the analyzed period 2007–2014 in an effort to consolidate the public budget. These changes are reflected in household spending, which were analyzed by means of the consumer basket, the composition of which is also undergoing changes. Another factor that has an impact on household expenditures is the transfer of commodities between the reduced and standard rate of VAT. The final factor used is the differentiation of households according to their income levels. The aim of this paper is to determine how these changes took effect in the Czech Republic in the share of consumption of commodities included in the standard and reduced VAT rates and in exempt transactions according to household income groups in the analyzed period 2007–2014 and to determine the impact of these changes on the tax burden on selected households by value added tax and confirmation of the assumption of VAT regressivity.
Article
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Member States of the European Union in the period of years 2007–2013 increased the rate of value added tax several times in an attempt to consolidate public budgets. While the Czech Republic is a typical representative of country changing VAT rates several times, Slovakia made practically only one change in the VAT rate. On the other hand, the Slovak Republic is a country where the reduced rate is applied only to the minimum of commodities. Changes in VAT are naturally reflected in household expenditures which are analyzed by the consumer basket, whose composition is also a subject of changes. Another factor that has an impact on household spending is swapping commodities between the rates of VAT. The aim of this paper is, based on the analytic-synthetic methods, to determine how are these changes differently manifested in the Czech Republic and the Slovak Republic in reference to the share of commodity consumption included in the standard and reduced VAT rates and to the exempt transactions, and, in particular, to determine how they affected the VAT burden of the hypothetical household in both countries.
Article
In December 2009, in just weeks of proximity to the issuance of several controversial, arguably ultra vires tax circulars by the Ministry of Finance and by the State Administration of Taxation (SAT), the latter agency promulgated a seminal regulation governing informal rulemaking activities of all tax authorities in China. This regulation took effect on July 1, 2010, and promises to significantly improve the clarity, transparency, predictability, and quality of tax rulemaking. Ironically, it can also be seen as a rebuke to a cynical view that is rather prevalent among Chinese tax practitioners and reinforced by the recent problematic tax circulars. This is the view that legal order does not matter in Chinese tax administration because the government does not care about such order and taxpayers are unwilling to enforce it, and that therefore informal rules issued by the government should be given full weight even if they contradict law of higher authority and/or are inconsistent with each other. The new SAT regulation on informal rulemaking is just one illustration of the dynamic development of the rule of law in taxation in China. This essay takes the new regulation as an occasion for examining the question: what is “law” in Chinese tax administration? Three views are described: one that is embodied in the Law on Legislation; another that tends to treat all government announcements as having the force of law; and a third, embodied in the new SAT regulation, that differs from both.