Value Added Tax and Financial Services
Victoria University of Wellington - Faculty of Law; Institut für Österreichisches und Internationales Steuerrecht, Wirtschaftsuniversität Wien; University of Notre Dame Australia - School of Law
Sybrand Van Schalkwyk
Asia-Pacific Tax Bulletin, Vol. 10, pp. 363-370, 2004
Victoria University of Wellington Legal Research Paper No. 29/2013
Value added tax (VAT) is a relatively modern development. Designers of VAT recognized from the outset that the way in which financial institutions are remunerated creates significant difficulty when the tax is applied to their services. Administrative difficulties relate to imposing invoice-based VAT on service fees charged as part of the margin between buy and sell rates. Theoretical reasons relate to arguments that financial services should not be taxed under a consumption tax because, it is argued, financial services are not consumed in the way in which goods and services are consumed. Because of these difficulties, most jurisdictions have opted to exempt financial services from VAT. However, the commonly accepted reasons to exempt financial services from VAT are not compelling, since financial services are no different in relevant respects from other services. Moreover, there are methods by which financial services could be brought within the VAT base. Furthermore, although exemption is the simplest way for a VAT to treat financial services, it causes significant distortions in the economy.
Number of Pages in PDF File: 10
Keywords: Income Tax, Value Added Tax, Financial Services, Goods and Services Tax, Non-Discrimination Principle
JEL Classification: K34
Date posted: May 15, 2010 ; Last revised: June 19, 2013
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