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

Howell Zee

National Tax Journal, 2005, vol. 58, issue 1, 77-92

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.

Date: 2005
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Working Paper: A New Approach to Taxing Financial Intermediation Services Under a Value Added Tax (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:ntj:journl:v:58:y:2005:i:1:p:77-92

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