Value-added tax (VAT) is a mainstay of revenue systems in more than 160 countries. Because consumption is a more stable revenue base than other tax bases, VAT is less distorting and hence more likely to encourage investment, savings, optimum labor supply decisions, and growth. VAT is not without criticism however, and faces its own specific technical and policy challenges. This book, the first to thoroughly evaluate VAT from a global policy perspective after over 50 years of experience with its intricacies, offers authoritative perspectives on VAT’s full spectrum—from its signal successes to the subtle ways its application can undermine revenue performance and economic neutrality.
The contributors—leading tax practitioners and academics—examine the key policy issues and topics that are crucially relevant for measuring the success of the tax in the first part of the book, including:
- revenue generation and revenue efficiency;
- single rate versus multiple rates;
- susceptibility to fraud;
- exemptions and exceptions;
- compliance cost for businesses;
- policy and compliance gaps in revenue collection;
- adjustment rules caused by the transactional nature of the tax;
- transfer pricing issues;
- treatment of vouchers;
- permanent establishments and holding companies;
- payment of refunds;
- cross-border digital transactions; and
- supplies for free or below cost price.
The second part offers six country reports—on New Zealand, Japan, China, Colombia, Ethiopia, and India—to demonstrate the different ways in which VAT operates in a variety of national economies.
Whether a government is contemplating the imposition of a general consumption tax for the first time or new rules for applying an existing one, it is important for policymakers to keep central the aim to design a tax that realizes optimal efficiency and causes minimal distortions. This invaluable book serves as an expert guide to VAT policy development in this area. It will be welcomed not only by concerned government officials but also by tax professionals (both lawyers and accountants) and academics in tax law.
