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

July 1, 2004

Preview Citation

Format: Chicago

Howell H Zee. A New Approach to Taxing Financial Intermediation Services Under a Value Added Tax, (USA: International Monetary Fund, 2004) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Banking, Credit, Economic sectors, Financial institutions, Financial sector, Financial services, Loans, Money, Taxes, Value-added tax

Keywords: Credit, Credit chain, Financial sector, Financial services, Global, Invoice, Invoice-credit VAT, Loan, Loans, Tax, Value-added tax, VAT, VAT burden, VAT invoice, VAT rate, WP

Publication Details

Pages:

19
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2004/119
Stock No:

WPIEA1192004
ISBN:

9781451854206
ISSN:

1018-5941

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