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

Author: Mr. Howell H Zee

Volume/Issue: Volume 2004 Issue 119

Publication date: July 2004

ISBN: 9781451854206

$20.00

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Topics covered in this book

This title contains information about the following subjects. Click on a subject if you would like to see other titles with the same subjects.

Banks and Banking , Money and Monetary Policy , Taxation - General , 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

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Summary

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.