The challenges of value-added taxes
| Author | Michael Keen/Victor Thuronyi |
| Position | IMF Fiscal Affairs Department/IMF Legal Department |
| Pages | 137-145 |
Page 137
The value-added tax (VAT) is a growing source of government revenue but its complexity makes it difficult to administer and creates opportunities for fraud.With nearly threequarters of the world's countries now having adopted a VAT, the challenges associated with such asystem dominated the first global tax conference, held in mid-March in Rome, Italy.
The conference, convened jointly by the IMF, the Organization for Economic Cooperation and Development, and the World Bank, provided a practical forum for VAT experts to share their experiences and explore ways to disseminate good practices.
Page 144
Close to 130 countries-with the notable exception of the United States-have adopted the value-added tax (VAT) over the past 30 years or so. The VAT is a broad-based tax on all domestic sales that allows businesses to take a credit or receive a refund for the tax charged on their inputs so as to ensure that the tax bears only on final domestic consumption. The distinctive structure of this powerful source of revenue gives rise to special problems of control-an issue that formed part of the agenda of a March 14-16 conference held in Rome, organized by the International Tax Dialogue (ITD) -a joint initiative of the IMF, the Organization for Economic Cooperation and Development, and the World Bank (see box).
The conference, hosted by the Italian Ministry of Economy and Finance, was ITD's first global conference, bringing together tax officials from more than 100 countries and international organizations. They discussed a broad range of VAT policy and tax administration issues, with a particular focus on the need to combat fraud, ease administrative burdens for businesses, and explore means to improve international cooperation.
A universal concern among participants was the question of what to do about VAT fraud. Most VAT payers routinely and legitimately receive refunds on the basis of VAT shown on invoices issued by the taxpayer's suppliers. But fraudulent refund schemes arise when a refund claim is based on counterfeit invoices or on VAT shown on an invoice issued by the taxpayer's supplier, which in fact the supplier has not paid to the government. The VAT is sometimes described as self-policing...
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