Transcript VAT Abuses - Camara De Diputados

Centre for Tax Policy and Administration
Organisation for Economic Co-operation and Development
A MODEL VAT
OECD
PARIS
27 March 2007
27 March 2007
Centre for Tax Policy and Administration
Organisation for Economic Co-operation and Development
The spread of VAT
• 140 countries now have VATs
• VATs generate significant tax revenue:
– OECD: 6.9% of GDP, 18.9% of all taxes
– Mexico: 3.7% of GDP, 20.2% of all taxes
• Growing reliance on VAT revenue:
– OECD: 16.4% (1985), 18.9% (2003)
– Mexico: 15.9% (1985), 20.2% (2004)
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27 March 2007
Centre for Tax Policy and Administration
Organisation for Economic Co-operation and Development
VAT design: main policy issues
• Almost universal use of credit-invoice system and
application of destination principle
• Much diversity in the structure of VATs & revenue
• Considerable variation in registration thresholds
(zero to $90,000)
• VAT- a tax to refund (as well as collect)
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27 March 2007
Centre for Tax Policy and Administration
Organisation for Economic Co-operation and Development
VAT DESIGN: RATES
• Mexico: 15% = 3.7% of GDP
• Luxembourg: 15% but = 7.1% of GDP
• Germany was 16% = 6.2% of GDP
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27 March 2007
Centre for Tax Policy and Administration
Organisation for Economic Co-operation and Development
VAT DESIGN: RATES
Exemption: No tax charged but no tax recoverable
• Exemptions: Most countries exempt financial services, education,
health, charities.
• Financial Services: Difficult to ascertain value for adding tax. But New
Zealand recently zero-rated business-to-business financial services.
• Education, Health, Charities – social reasons.
• Exemption can be big tax-raising mechanism (UK = 8% of VAT)
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27 March 2007
Centre for Tax Policy and Administration
Organisation for Economic Co-operation and Development
VAT DESIGN: RATES
• Zero Rate: No tax charged but tax is recoverable by
business
• Few countries apply widely (UK and Ireland exceptions)
• Food, Books and Newspapers most common
• Mexico much wider than most (jewellery, hotel conference
services, caviar)
27 March 2007
Centre for Tax Policy and Administration
Organisation for Economic Co-operation and Development
VAT DESIGN: RATES
• Reduced rates: Tax charged at a rate less
than Standard Rate. Recoverable by
business
• Covers items zero-rated in some countries
• Others include construction, domestic
electricity and gas, supplies to disabled
people
27 March 2007
Centre for Tax Policy and Administration
Organisation for Economic Co-operation and Development
VAT DESIGN: THRESHOLD
• France, UK and Slovak Republic have highest
thresholds (c.$90,000)
• 6 OECD countries have no thresholds (inc
Mexico)
• 4 OECD countries have collection thresholds
• Some have variable thresholds (e.g. France and
Ireland with one for goods, one for services)
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27 March 2007
Centre for Tax Policy and Administration
Organisation for Economic Co-operation and Development
VAT DESIGN: THRESHOLD
• High thresholds favoured
• Avoids expensive tax collection of small
amounts
• Removes compliance burden on small
business
• High cost of maintaining large number of
registered businesses
27 March 2007
Centre for Tax Policy and Administration
Organisation for Economic Co-operation and Development
VAT DESIGN: THRESHOLD
• Can give some problems
• Artificial splitting of businesses to keep
below threshold
• “Cliff-edge syndrome”
• But international consensus that high
thresholds are more efficient
27 March 2007
Centre for Tax Policy and Administration
Organisation for Economic Co-operation and Development
A VAT designed for sub-optimal
performance?
KEY
FEATURES
NARROW BASE (AT STD RATE)
+
LOW THRESHOLDS
REQUIRE
HIGH
STANDARD
RATES
MULTIPLE
RATE
STRUCTURE
LARGE NUMBERS OF
SMALL VALUE PAYERS
LEADING
TO
INCENTIVES
TO EVADE
COMPLEXITY
POOR USE OF
AGENCY RESOURCES
RESULTING
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27 March 2007
POOR COMPLIANCE
HIGH COMPLIANCE COSTS
HIGH ADMINISTRATION COSTS
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Centre for Tax Policy and Administration
Organisation for Economic Co-operation and Development
VAT Efficiency
Features
NZ
Switz.
EU15
Mexico
VAT standard rate (%)
12.5
7.6
20
15
VAT reduced rate (no.)
No
Yes
Many
Yes
VAT revenue/GDP (%)
9.1
4.0
7.0
3.2
VAT C efficiency
96
72
51
30
Low
Low
High
High
VAT compliance burden
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27 March 2007
Centre for Tax Policy and Administration
Organisation for Economic Co-operation and Development
Improving Mexico’s VAT: Policy
•
•
•
•
Minimise zero rates
Exemption for some goods?
Reduced Rate in border regions?
Introduce registration threshold ($50,000?)
• MAJOR CHANGES AS PART OF
WIDER TAX REFORM
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27 March 2007