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

George Mackenzie

No 1991/021, IMF Working Papers from International Monetary Fund

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.

Keywords: WP; capital goods; tax liability; consumption-type VAT; intermediate sale; taxed goods; n products; VAT base; Consumption; Value-added tax; VAT exemptions; Consumption taxes; Effective tax rate (search for similar items in EconPapers)
Pages: 18
Date: 1991-02-01
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:1991/021

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