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

Howell Zee

No 2004/119, IMF Working Papers from International Monetary Fund

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: WP; VAT; tax; invoice; VAT burden; loan; financial services; VAT invoice; invoice-credit VAT; VAT rate; credit chain; Value-added tax; Loans; Credit; Financial sector; Global (search for similar items in EconPapers)
Pages: 19
Date: 2004-07-01
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Citations: View citations in EconPapers (3)

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Journal Article: A New Approach to Taxing Financial Intermediation Services Under a Value–Added Tax (2005)
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