Value Added Tax in the Extractive Industries
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Summary:
Lower capacity countries often struggle to administer the Value Added Tax (VAT) in the extractive industries, partly due to the large VAT refunds needs of this capital and export-intensive sector. Assuming that the first-best policy (apply the standard VAT to the extractive industry) is not possible in the medium-term, what should countries do? This paper systemically analyzes second-best VAT policy designs considering the impact of the VAT on three key stakeholders: the investor, domestic suppliers, and the tax administration. The analysis concludes that the generally preferred policy is to provide a VAT exemption for imports and either fully tax or exempt domestic supplies, although country characteristics (and, specifically the relative weighting of stakeholders) matter. Moreover, governments should make efforts to shorten refund delays and transition to a standard VAT over the longer-term.
Series:
Working Paper No. 2023/221
Subject:
Imports International trade Revenue administration Tax allowances Tax refunds Taxes Value-added tax VAT exemptions
Frequency:
regular
English
Publication Date:
October 27, 2023
ISBN/ISSN:
9798400258145/1018-5941
Stock No:
WPIEA2023221
Format:
Paper
Pages:
49
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