Estimating the Base of the Value-Added Tax (Vat) in Developing Countries: The Problem of Exemptions

18 Pages Posted: 15 Feb 2006

Date Written: February 1991

Abstract

Developing countries with VATs typically exempt a large number of goods and services. Following a brief discussion of the rationale for exemptions, this paper presents a formula for the base of a VAT with exemptions. Two basic adjustments must be made to the base without exemptions: subtraction of the value of sales to consumers of exempt industries and addition of intermediate sales of taxable inputs to exempt industries. The paper concludes with a derivation of the elasticity of a VAT with exemptions with respect to aggregate consumption and a discussion of the implications of technological change for the VAT base.

JEL Classification: 323

Suggested Citation

Mackenzie, George A. (Sandy), Estimating the Base of the Value-Added Tax (Vat) in Developing Countries: The Problem of Exemptions (February 1991). IMF Working Paper No. 91/21, Available at SSRN: https://ssrn.com/abstract=884645

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