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

Author

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  • Mr. George A Mackenzie

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.

Suggested Citation

  • Mr. George A Mackenzie, 1991. "Estimating the Base of the Value-Added Tax (VAT) in Developing Countries: The Problem of Exemptions," IMF Working Papers 1991/021, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1991/021
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    Cited by:

    1. Mr. Anthony J. Pellechio & Ms. Catharine Hill, 1996. "Equivalence of the Production and Consumption Methods of Calcuting the Value-Added Tax Base: Application in Zambia," IMF Working Papers 1996/067, International Monetary Fund.
    2. Iswahyudi, Heru, 2018. "Where has the money gone?: The case of Value Added Tax revenue performance in Indonesia," MPRA Paper 89876, University Library of Munich, Germany.

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