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

19 Pages Posted: 15 Feb 2006

Date Written: July 2004

Abstract

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.

Keywords: VAT, financial services

JEL Classification: H2

Suggested Citation

Zee, Howell H., A New Approach to Taxing Financial Intermediation Services Under a Value-Added Tax (July 2004). IMF Working Paper No. 04/119, Available at SSRN: https://ssrn.com/abstract=878943

Howell H. Zee (Contact Author)

Xiamen University ( email )

Xiamen, Fujian 361005
China

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
234
Abstract Views
1,149
Rank
237,449
PlumX Metrics