Limit Administrative Costs
VAT Notches, Voluntary Registration, and Bunching: Theory and UK Evidence
Abstract: Using administrative tax records for U.K. businesses, we document both bunching in annual turnover below the VAT registration threshold and persistent voluntary registration by almost half of the firms below the threshold. We develop a conceptual framework that can simultaneously explain these two apparently conflicting facts. The framework also predicts that higher intermediate input shares, lower product-market competition, and a lower share of business to consumer sales lead to voluntary registration. The predictions are exactly the opposite for bunching. We test the theory using linked VAT and corporation tax records from 2004 to 2014, finding empirical support for these predictions.
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Citation: Liu, Li, Ben Lockwood, Miguel Almunia, and Eddy H. F. Tam. “VAT Notches, Voluntary Registration, and Bunching: Theory and U.K. Evidence.” The Review of Economics and Statistics 103, no. 1 (2021): 151–64. https://doi.org/10.1162/rest_a_00884.
Blockchain Technology Application for Value-Added Tax Systems
Abstract: The utilization of new technology in the form of blockchain technology for a Value Added Tax (VAT) acceptance system is relatively new and has not been widely encountered thus far. This research analyzes how blockchain technology can be applied to a VAT system, particularly for electronic invoices (e-Invoice). A qualitative approach was used in this study to analyze blockchain technology models that could be applied in a VAT system. The results of this study indicate that due to its characteristics, blockchain technology can only be applied to taxpayer data that do not require privacy. Data that are considered safe if distributed to nodes in the blockchain technology network include the Tax Invoice Serial Number (TISN). A TISN system based on blockchain technology will produce a faster and more efficient system. Transactions on the TISN in Indonesia can also be monitored and tracked directly by the Directorate General of Taxation (DGT). Blockchain technology can be applied in the TISN system by using a permissioned private blockchain type.
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Citation: Setyowati, Milla Sepliana, Niken Sila De Utami, Arfah Habib Saragih, and Adang Hendrawan. “Blockchain Technology Application for Value-Added Tax Systems.” Journal of Open Innovation: Technology, Market, and Complexity 6, no. 4 (2020): 156. https://doi.org/10.3390/joitmc6040156.
Computerizing VAT Invoices in China
Abstract: This paper documents that an increase in the enforcement of value-added tax (VAT) caused by the adoption of a new technology significantly increased VAT payments by large manufacturing firms in China. The reform contributed to 27.1% of VAT revenues and 12.9% of total government revenues in the five subsequent years. The main mechanism is likely to be a reduction in VAT deductions. The dynamic effects of the reform suggest that the rise in tax revenues is non-monotonic over time, with large short-run gains and smaller, though still positive, long-run gains. The reform also reduced firm revenues and inputs, and increased productivity.
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Citation: Fan, Haichao, Yu Liu, Nancy Qian, and Jaya Wen. Computerizing VAT Invoices in China. No. W24414. National Bureau of Economic Research, 2018. https://doi.org/10.3386/w24414.
The Response of Firms to Eligibility Thresholds: Evidence from the Japanese Value-Added Tax
Abstract: It is common to define benefit eligibility for small business policies by restrictions on the firm size. This paper documents the effects of the value-added tax (VAT) threshold in Japan, focusing on the incentives for a large firm to “masquerade” as many small firms by separately incorporating business segments. A comparison of the corporate size distributions before and after the VAT introduction of 1989 shows a clustering of corporations just below the threshold—a pattern that is attributable to the behavioral responses. To rule out the confounding influences of the changes in the company attributes over the years, we applied a semiparametric density decomposition technique developed by DiNardo, Fortin, and Lemieux (DiNardo J., Fortin N.M., Lemieux T., Labor market institutions and the distribution of wages, 1973–1992: a semiparametric approach. Econometrica 1996; 64; 1001–1044). This study suggests that the masquerading behavior by firms may be commonplace in other settings.
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Citation: Onji, Kazuki. “The Response of Firms to Eligibility Thresholds: Evidence from the Japanese Value-Added Tax.” Journal of Public Economics 93, nos. 5–6 (2009): 766–75. https://doi.org/10.1016/j.jpubeco.2008.12.003.
The Optimal Threshold for a Value-Added Tax
Abstract: One of the key features of a value-added tax—and often one of the most contentious—is the threshold level of turnover at which firms are obliged to register for the tax. Despite its importance, however, the question of the appropriate level at which to set this threshold has received little analytical attention. This paper first develops a simple rule characterizing the optimal threshold (when firms’ sizes are fixed) in terms of a trade-off between tax revenues and collection costs. It then considers, in principle and by simulation, the implications for the optimal threshold of the production inefficiencies implied by the differential treatment of those above and below the threshold.
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Citation: Keen, Michael, and Jack Mintz. “The Optimal Threshold for a Value-Added Tax.” Journal of Public Economics 88, nos. 3–4 (2004): 559–76. https://doi.org/10.1016/S0047-2727(02)00165-2.