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Efficient treatment of banking services under VAT

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  • Guillermo Peña

Abstract

The efficiency of tax systems is an important topic for policy makers and academics. We focus on the efficiency of applying VAT to traditional banking services, a significant issue where a consensus has yet to be reached since the first debates more than two decades ago. This paper discusses one of the most relevant models of tax efficiency on banking services under VAT, the model developed by Jack (2000). This author shows that explicit fees and commissions should be taxable under VAT, while implicit fees covered by banking spreads should be zero-rated. An alternative theoretical approach is developed in this paper, proposing the taxation of both explicit and implicit fees of financial services under VAT at the same tax rate, which should also be the same rate applied to all other goods and services.

Suggested Citation

  • Guillermo Peña, 2019. "Efficient treatment of banking services under VAT," Economics and Business Letters, Oviedo University Press, vol. 8(2), pages 115-121.
    • Handle: RePEc:ove:journl:aid:13364
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    File URL: https://reunido.uniovi.es/index.php/EBL/article/view/13364
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    References listed on IDEAS

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    1. Ben Lockwood & Erez Yerushalmi, 2014. "Should transactions services be taxed at the same rate as consumption?," Working Papers 1423, Oxford University Centre for Business Taxation.
    2. Poddar, Satya & English, Morley, 1997. "Taxation of Financial Services Under a Value-Added Tax: Applying the Cash-Flow Approach," National Tax Journal, National Tax Association;National Tax Journal, vol. 50(1), pages 89-111, March.
    3. Julio López-Laborda & Julio Guillermo Peña, 2018. "A New Method for Applying VAT to Financial Services," National Tax Journal, National Tax Association;National Tax Journal, vol. 71(1), pages 155-182, March.
    4. Michael Keen & Russell Krelove & John Norregaard, 2016. "Policy Forum: The Financial Activities Tax," Canadian Tax Journal, Canadian Tax Foundation, vol. 64(2), pages 389-400.
    5. Alan J. Auerbach & Roger H. Gordon, 2002. "Taxation of Financial Services under a VAT," American Economic Review, American Economic Association, vol. 92(2), pages 411-416, May.
    6. Michael Keen, 2011. "Rethinking the Taxation of the Financial Sector ," CESifo Economic Studies, CESifo Group, vol. 57(1), pages 1-24, March.
    7. Jack, William, 2000. "The Treatment of Financial Services Under a Broad-Based Consumption Tax," National Tax Journal, National Tax Association;National Tax Journal, vol. 53(4), pages 841-852, December.
    8. Poddar, Satya & English, Morley, 1997. "Taxation of Financial Services Under a Value-Added Tax: Applying the Cash-Flow Approach," National Tax Journal, National Tax Association, vol. 50(1), pages 89-111, March.
    9. Jack, William, 2000. "The Treatment of Financial Services under a Broad-Based Consumption Tax," National Tax Journal, National Tax Association, vol. 53(n. 4), pages 841-52, December.
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    Cited by:

    1. Peña, Guillermo, 2021. "A Monetary Policy Rule using Gravity Models," MPRA Paper 105967, University Library of Munich, Germany.
    2. Guillermo Peña, 2021. "The key role of quoted spreads in financial services and transactions," Economics and Business Letters, Oviedo University Press, vol. 10(3), pages 208-216.

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