TAXATION OF FINANCIAL SERVICES UNDER A VALUE-ADDED TAX: APPLYING THE CASH-FLOW APPROACH

descriptionPublicationkeyboard_double_arrow_right Article 01 Mar 1997 English Publisher:University of Chicago PressJournal:National Tax Journal, volume 50, pages 89-111 (issn: 0028-0283, eissn: 1944-7477,

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Authors: Poddar, Satya; English, Morley;

doi: 10.1086/ntj41789244

TAXATION OF FINANCIAL SERVICES UNDER A VALUE-ADDED TAX: APPLYING THE CASH-FLOW APPROACH

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Abstract

Financial services have generally been exempt under value- added tax (VAT ) systems due to the inability to identify the appropriate tax base, which is hidden in the financial margin. A cash-flow VAT approach represents one means of defining this tax base in a way that is compatible with credit-invoice VATs. This paper describes the use of a cash-flow VAT for a banking deposit/loan operation and indicates the practical difficulties blocking use of the full cash-flow method. It then describes a variant of the cash-flow system, referred to as the "Truncated Cash-Flow Method with Tax Calculation Account," which is designed to overcome these difficulties.

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