Estimating the Base of the Value-Added Tax (VAT) in Developing Countries : The Problem of Exemptions

Developing countries with VATs typically exempt a large number of goods and services. Following a brief discussion of the rationale for exemptions, this paper presents a formula for the base of a VAT with exemptions. Two basic adjustments must be made to the base without exemptions: subtraction of the value of sales to consumers of exempt industries and addition of intermediate sales of taxable inputs to exempt industries. The paper concludes with a derivation of the elasticity of a VAT with exemptions with respect to aggregate consumption and a discussion of the implications of technological change for the VAT base.
Publication date: February 1991
ISBN: 9781451921465
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International - Economics , vat , aggregate consumption , value-added tax , intermediate inputs , indirect tax

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