- Alan Tait
- Published Date:
- June 1991
Value-Added Tax: Administrative and Policy Issues
Edited by Alan A. Tait
INTERNATIONAL MONETARY FUND
© 1991 International Monetary Fund
Reprinted March 1995
Library of Congress Cataloging-in-Publication Data
Value-added tax: administrative and policy issues / edited by Alan A.
p. cm. — (Occasional Paper / International Monetary Fund
ISSN 0251-6365; no. 88)
Includes bibliographical references.
1. Value-added tax—Asia. I. Tait, Alan A. II. Series: Occasional paper (International Monetary Fund); no. 88.
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- I. VAT Policy Issues: Structure, Regressivity, Inflation, and Exports
- Alan A. Tait
- Why a VAT?
- The Retail Sales Tax Alternative
- Form of VAT
- Regressivity, Equity, and the VAT
- Is VAT Inflationary?
- Does VAT Help Exports?
- Treatment of Food
- Treatment of Capital Goods
- Treatment of Financial Services
- Treatment of Small Traders
- II. Planning for VAT
- Graham Holland
- The Development Unit
- The Tasks
- Staff Needed to Develop a VAT
- The Timetable
- Annex I. VAT Implementation Schedule
- III. Guidelines for Administering a VAT
- Milka Casanegra de Jantscher and Carlos Silvani
- Registration and Taxpayer Identification
- Invoicing and Bookkeeping Requirements
- The Collection Function
- Role of Electronic Data Processing
- Annex I. Example of Application Form for VAT Registration
- IV. Invoices, Books of Account, and Tax Return Forms for VAT
- V. VAT Organizational Issues
- VI. Computerization for VAT
- Sol Dubroof
- What Does Computerization Offer?
- Precomputerization Activities and Decisions
- Cost/Benefit Analysis
- Some Problems of Computerization
- System Implementation
- Innovations in Computerized Tax Administration
- Annex I. Main Activities of a VAT Computer System
- Annex II. Computerized Accounting and Remittance Processing and Inquiry System (CARPIS)
- Milka Casanegra de Jantscher, Carlos Silvani, and Graham Holland
- Typical forms of Tax Noncompliance
- Preventive Measures
- Types of VAT Audit
- Main Features of a VAT Audit
- Audit Methodology
- Selection Criteria
- Audit Support Systems
- The Frequency of Audit
- Management of Audit
- Audit Staff
- Evaluation of Audit
- Annex I. Examples of VAT Advisory Visit Forms
- Annex II. Examples of VAT Audit Forms
- Annex III. Examples of Typical VAT Frauds
- Appendix I. Seminar Participants
- 1. Percentage VAT Rates Throughout the World
- 2. Treatment of Small Firms Under VAT, 1990
- 3. Accounts-Based VAT: Estimates of Changes in Taxpayer Numbers and Returns Processed as Exemption Limit Changes
- 4. Accounts-Based and Invoice-Based VAT: Estimates of Number of Staff Needed According to Frequency of Returns and Exemption Limits
- 1. Distribution of Taxpayers and Value Added: Companies and Self-Employed in a Small Pacific Economy
- 2. Impact of Farmers on the Number of Registered Persons in New Zealand, 1985
- 3. VAT Department: General Structure
- 4. VAT: District Office Structure
- 5. VAT: National Office Structure
- 6. Number of Staff Needed for the Main Functions of a VAT
In March 1990 the Fiscal Affairs Department of the International Monetary Fund (IMF) and the United Nations Development Program (UNDP) sponsored a joint seminar on “The Value-Added Tax in Asia,” in Jakarta, Indonesia. Particular credit should be given to the Indonesian authorities, especially Dr. Dono Iskandar, who took great trouble to ensure that the meetings were a success. The papers included in this publication reflect the discussions at the seminar. The authors are members of the staff of the Fiscal Affairs Department (Alan Tait, Milka Casanegra de Jantscher, Carlos Silvani, and Charles Vehorn) or members of the panel of fiscal experts (Graham Holland and Sol Dubroof). Although each paper acknowledges individual authors, each participant contributed to the seminar and their names appear in Appendix I.
As the first chapter of this publication shows, the value-added tax (VAT) has become a most popular tax used in over 50 countries. In the mid-1970s, the Fiscal Affairs Department of the IMF worked with the Korean authorities to assess the practicality of introducing a VAT and in 1977 Korea became the first Asian country to adopt a VAT. It was followed by Indonesia in 1985, Taiwan Province of China in 1986, and the Philippines in 1988. Beyond Asia, the Fiscal Affairs Department has worked on VATs with countries in Europe, Latin America, Africa and, most recently, in the Middle East and Eastern Europe. Probably no other agency has such a worldwide experience of hands-on problems in introducing and running a VAT.
This spread of VAT has stimulated interest internationally, including many countries in Asia, and the Jakarta IMF-UNDP conference was designed to address some of the practical questions all countries face when introducing or running a VAT. What will be the effect on prices, will it be regressive, and what are the alternatives to using a full-fledged VAT? Will it help exports and investment? How should food, capital goods, and financial institutions be treated (Chapter I)?
Introducing a VAT should be planned carefully. In Chapter II, Graham Holland, who has worked on VATs in Europe, the Middle East, and Asia, looks at the establishment and tasks of a VAT development unit, the legislation, consultation, organization, and staffing. A VAT development timetable of two years is elaborated, which can be lengthened or shortened depending on individual country circumstances.
The guidelines for administering a VAT are outlined in Chapter III. Milka Casanegra de Jantscher and Carlos Silvani, who have extensive first-hand knowledge of VATs in Europe, Latin America, and Asia, emphasize registration and taxpayer identification, invoicing and bookkeeping requirements, and the collection function, including the role of electronic data processing. Also, how should tax forms be designed and what is the appropriate role for audit in VAT?
Chapter IV considers the compliance obligations of the taxpayers; the need to establish invoices, keep books of account, and make returns. Chapter V returns to the staffing needs to run a VAT and the different possible structures.
In Chapter VI, Sol Dubroof, who has helped authorities to computerize VAT in Europe, Asia, and the Pacific, explains the role of computers in running a VAT, including an Annex outlining the basic user needs for a computer-assisted VAT administration. Chapter VII examines the crucial role of audit in VAT and gives some details of how audits for VAT might be conducted.
In all this it will be apparent that the original papers given in Jakarta have been improved by the comments made by participants; the text of each paper has been changed substantially (and Chapter IV introduced) to reflect problems and concerns raised during the seminar. At the same time, because the topics have an interest throughout the world, the specific concentration on Asia has been generalized so that the papers might now be read with profit by anyone dealing (or thinking of involving himself) with VAT. It is hoped that in this way the contributions to the seminar will be able to help politicians, tax administrators, tax advisors, and others with an interest in VAT.
Special thanks are due to the New Zealand authorities for their readiness in providing the VAT forms reproduced in the Annexes to Chapter VII. Thanks are also due to Glynis Alder, Maria E. David, Carmelita O. Eugenio, Heather D. MacDonald, Olga Martin, and Champa Nguyen for secretarial assistance and to Esha Ray of the External Relations Department for editorial assistance. The opinions expressed in the papers are those of the authors and do not necessarily reflect the views of the IMF.
The following symbols have been used throughout this paper:
- … to indicate that data are not available;
- — to indicate that the figure is zero or less than half the final digit shown, or that the item does not exist;
- – between years or months (e.g., 1990–91 or January–June) to indicate the years or months covered, including the beginning and ending years or months;
- / between years (e.g., 1990/91) to indicate a crop or fiscal (financial) year.
“Billion” means a thousand million.
Minor discrepancies between constituent figures and totals are due to rounding.
The term “country,” as used in this paper, does not in all cases refer to a territorial entity that is a state as understood by international law and practice; the term also covers some territorial entities that are not states, but for which statistical data are maintained and provided internationally on a separate and independent basis.