Limit Administrative Costs
VAT Digital Toolkit for Africa
Abstract: The VAT Digital Toolkit for Africa supports tax authorities on the continent with the design and implementation of measures to ensure the effective collection of value added taxes (VAT) on e-commerce. Africa is a major and growing market for global e-commerce. VAT is the single largest source of tax revenue in African jurisdictions on average. The challenges to collect VAT on continuously growing e-commerce sales create increasingly significant pressures for VAT regimes in Africa and worldwide. These challenges concern collection on booming sales of online services and digital products to private consumers (“apps”, streaming, gaming, ride-hailing, etc.) and on online sales of low-value imported goods, often by foreign merchants. VAT may often not be levied effectively on these sales under existing rules in African jurisdictions. This toolkit provides detailed guidance for the implementation of a comprehensive VAT strategy directed at all types of e-commerce. It aims to help governments in Africa secure important VAT revenues and ensure a level playing field between bricks-and-mortar retailers and foreign online merchants. The OECD has produced this toolkit in partnership with the World Bank Group, following the publication of editions for Latin America and the Caribbean and for Asia-Pacific. The African Tax Administration Forum (ATAF) has contributed considerably as the key regional partner for Africa.
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Citation: OECD/WBG/ATAF. VAT Digital Toolkit for Africa. OECD, 2023. https://www.oecd.org/content/dam/oecd/en/topics/policy-issues/consumption-taxes/vat-digital-toolkit-for-africa.pdf.
VAT Digital Toolkit for Asia-Pacific
Abstract: The VAT Digital Toolkit for Asia-Pacific (APAC) aims to assist tax authorities in the APAC region with the design and implementation of reform to ensure the effective collection of value added taxes (VAT) on e-commerce activities. APAC is the largest e-commerce region in the world. VAT is a crucial source of tax revenue for the region. The challenges to collect VAT on the continuously growing e-commerce sales create increasingly important pressures for VAT regimes worldwide. These challenges relate to VAT collection on the booming sales of online services and digital products to private consumers (“apps”, streaming, gaming, ride-hailing, etc.) and on online sales of low-value imported goods, often by foreign merchants. VAT is often not levied effectively on these sales under existing rules. This toolkit provides detailed guidance for the implementation of a comprehensive VAT strategy directed at all types of e-commerce. It is designed to help governments secure important VAT revenues and to ensure a level playing field between brick-and-mortar retailers and foreign online merchants. This toolkit has been produced by the OECD in partnership with the World Bank Group. This partnership also includes editions for Latin America and the Caribbean and for Africa. The Asian Development Bank (ADB) has contributed considerably as regional partner for the APAC region.
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Citation: OECD/WBG/ADB. VAT Digital Toolkit for Asia-Pacific. OECD, 2022. https://www.oecd.org/content/dam/oecd/en/topics/policy-issues/consumption-taxes/vat-digital-toolkit-for-asia-pacific.pdf.
VAT Digital Toolkit for Asia-Pacific
Abstract: The VAT Digital Toolkit for Asia-Pacific (APAC) aims to assist tax authorities in the APAC region with the design and implementation of reform to ensure the effective collection of value added taxes (VAT) on e-commerce activities. APAC is the largest e-commerce region in the world. VAT is a crucial source of tax revenue for the region. The challenges to collect VAT on the continuously growing e-commerce sales create increasingly important pressures for VAT regimes worldwide. These challenges relate to VAT collection on the booming sales of online services and digital products to private consumers (“apps”, streaming, gaming, ride-hailing, etc.) and on online sales of low-value imported goods, often by foreign merchants. VAT is often not levied effectively on these sales under existing rules. This toolkit provides detailed guidance for the implementation of a comprehensive VAT strategy directed at all types of e-commerce. It is designed to help governments secure important VAT revenues and to ensure a level playing field between brick-and-mortar retailers and foreign online merchants. This toolkit has been produced by the OECD in partnership with the World Bank Group. This partnership also includes editions for Latin America and the Caribbean and for Africa. The Asian Development Bank (ADB) has contributed considerably as regional partner for the APAC region.
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Citation: OECD/WBG/ADB. VAT Digital Toolkit for Asia-Pacific. OECD, 2022. https://www.oecd.org/content/dam/oecd/en/topics/policy-issues/consumption-taxes/vat-digital-toolkit-for-asia-pacific.pdf.
VAT Digital Toolkit for Latin America and the Caribbean
Abstract: This toolkit aims to assist tax authorities in the Latin America and Caribbean (LAC) region with the design and implementation of policy reform to ensure the effective collection of VAT on e-commerce activities. VAT is the largest source of tax revenue on average in the LAC region. The main e-commerce VAT challenges relate to the strong growth in online sales of services and digital products to private consumers ("apps", music and movie streaming, gaming, ride-hailing, etc.) and to the exponential growth in online sales of low-value imported goods, often by foreign sellers, on which VAT is not collected effectively under existing rules. This toolkit provides detailed guidance for the successful implementation of a comprehensive VAT strategy directed at all types of e-commerce. It is designed to help governments secure important VAT revenues and to safeguard an even playing field between brick-and-mortar stores and foreign online sellers. The toolkit has been produced by the OECD in partnership with the World Bank Group (WBG). This partnership also includes the delivery of editions for Asia-Pacific and Africa. The Inter American Center of Tax Administrations (CIAT) and the Inter American Development Bank (IDB) have contributed considerably as regional partners for the LAC region.
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Citation: OECD/WBG/CIAT/IDB. VAT Digital Toolkit for Latin America and the Caribbean. OECD, 2021. https://www.oecd.org/content/dam/oecd/en/topics/policy-issues/consumption-taxes/vat-digital-toolkit-for-latin-america-and-the-caribbean.pdf.
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.