Pub Date : 2019-07-12DOI: 10.1093/oso/9780198844075.003.0001
S. Cnossen
Chapter 1 shows that in about half of all countries on the African continent, tax revenue as a percentage of GDP (called the tax ratio) is around 15 per cent or less, which is not enough to finance more human and economic development. The instrument for greater domestic resource mobilization is a broad-based consumption tax, such as a VAT. Current VATs, however, are riddled with exemptions, exclusions and zero rates which depress revenue, are highly distortionary and greatly complicate VAT administration. The abolition of exemptions for goods, services, and entities and, more generally, unnecessary design differentiations would reduce the weight and sway of legal opinions and increase the administrative resources available for monitoring compliance with the VAT. Revenue should benefit.
{"title":"Why VAT?","authors":"S. Cnossen","doi":"10.1093/oso/9780198844075.003.0001","DOIUrl":"https://doi.org/10.1093/oso/9780198844075.003.0001","url":null,"abstract":"Chapter 1 shows that in about half of all countries on the African continent, tax revenue as a percentage of GDP (called the tax ratio) is around 15 per cent or less, which is not enough to finance more human and economic development. The instrument for greater domestic resource mobilization is a broad-based consumption tax, such as a VAT. Current VATs, however, are riddled with exemptions, exclusions and zero rates which depress revenue, are highly distortionary and greatly complicate VAT administration. The abolition of exemptions for goods, services, and entities and, more generally, unnecessary design differentiations would reduce the weight and sway of legal opinions and increase the administrative resources available for monitoring compliance with the VAT. Revenue should benefit.","PeriodicalId":376121,"journal":{"name":"Modernizing VATs in Africa","volume":"111 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-07-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124911209","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2019-07-12DOI: 10.1093/oso/9780198844075.003.0018
S. Cnossen
Chapter 18 sums up the arguments for the widely shared belief that VAT’s role in the tax system primarily is to raise revenue, predictably and efficiently. Accordingly, African VATs would benefit from a thorough review of the standard and non-standard exemptions, exclusions and zero rates, which depress tax collections, distort consumer and producer choices, discriminate against exports, favour imports, greatly increase administrative complexity, and promote tax avoidance. The case for VAT base-broadening is greatly strengthened by the findings of incidence studies that show that the net result of fiscal systems can be equalizing if the revenue from broad-based VATs is used to finance in-kind transfers, such as healthcare and education. Importantly, the emphasis on VAT policy should not detract from the centrality of VAT administration in shaping desirable outcomes. But better VAT design should lay the groundwork for better VAT administration. Last but not least, modernizing VAT systems requires a change in mindsets.
{"title":"Agenda for VAT Modernization","authors":"S. Cnossen","doi":"10.1093/oso/9780198844075.003.0018","DOIUrl":"https://doi.org/10.1093/oso/9780198844075.003.0018","url":null,"abstract":"Chapter 18 sums up the arguments for the widely shared belief that VAT’s role in the tax system primarily is to raise revenue, predictably and efficiently. Accordingly, African VATs would benefit from a thorough review of the standard and non-standard exemptions, exclusions and zero rates, which depress tax collections, distort consumer and producer choices, discriminate against exports, favour imports, greatly increase administrative complexity, and promote tax avoidance. The case for VAT base-broadening is greatly strengthened by the findings of incidence studies that show that the net result of fiscal systems can be equalizing if the revenue from broad-based VATs is used to finance in-kind transfers, such as healthcare and education. Importantly, the emphasis on VAT policy should not detract from the centrality of VAT administration in shaping desirable outcomes. But better VAT design should lay the groundwork for better VAT administration. Last but not least, modernizing VAT systems requires a change in mindsets.","PeriodicalId":376121,"journal":{"name":"Modernizing VATs in Africa","volume":"8 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-07-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129057708","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2019-07-12DOI: 10.1093/oso/9780198844075.003.0007
S. Cnossen
Chapter 7 starts by reviewing the ways in which African countries mitigate the VAT’s regressivity, real or perceived, by providing concessionary treatment for foodstuffs. This is followed by a survey of the results of various VAT incidence studies, especially regarding South Africa. The results indicate that the incidence of most VATs is less regressive than is often thought. The discussion proceeds by highlighting the advantages and disadvantages in choosing the best instrument to mitigate the VAT’s regressivity, if desired: taxing basic foodstuffs at a zero rate, taxing them at a lower rate, or exempting them. In considering VAT’s regressive burden distribution, it is important to bear in mind that the issue should be viewed in the context of the entire tax and expenditure system. It has been shown that efficient regressive taxes (such as the VAT) when combined with generous well-targeted transfers can result in a net fiscal system that is equalizing.
{"title":"VAT Incidence and Rate Structure","authors":"S. Cnossen","doi":"10.1093/oso/9780198844075.003.0007","DOIUrl":"https://doi.org/10.1093/oso/9780198844075.003.0007","url":null,"abstract":"Chapter 7 starts by reviewing the ways in which African countries mitigate the VAT’s regressivity, real or perceived, by providing concessionary treatment for foodstuffs. This is followed by a survey of the results of various VAT incidence studies, especially regarding South Africa. The results indicate that the incidence of most VATs is less regressive than is often thought. The discussion proceeds by highlighting the advantages and disadvantages in choosing the best instrument to mitigate the VAT’s regressivity, if desired: taxing basic foodstuffs at a zero rate, taxing them at a lower rate, or exempting them. In considering VAT’s regressive burden distribution, it is important to bear in mind that the issue should be viewed in the context of the entire tax and expenditure system. It has been shown that efficient regressive taxes (such as the VAT) when combined with generous well-targeted transfers can result in a net fiscal system that is equalizing.","PeriodicalId":376121,"journal":{"name":"Modernizing VATs in Africa","volume":"77 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-07-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127410853","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2019-07-12DOI: 10.1093/oso/9780198844075.003.0003
S. Cnossen
Chapter 3 reviews broad-based consumption taxes with which the VAT can be compared, especially the retail sales tax (RST). The Profit & Loss (P&L) Account forms the basis for explaining how the tax liabilities under the various variants are computed. The accounting matrix is also used to note the similarities to and differences from a conventional business income tax whose profits are ascertained on the basis of the matching principle. Subsequently, the practical differences between the taxes are discussed, as well as their prevalence around the world. A brief section on the major lessons from worldwide experience with VAT concludes.
{"title":"Other Broad-Based Consumption Taxes","authors":"S. Cnossen","doi":"10.1093/oso/9780198844075.003.0003","DOIUrl":"https://doi.org/10.1093/oso/9780198844075.003.0003","url":null,"abstract":"Chapter 3 reviews broad-based consumption taxes with which the VAT can be compared, especially the retail sales tax (RST). The Profit & Loss (P&L) Account forms the basis for explaining how the tax liabilities under the various variants are computed. The accounting matrix is also used to note the similarities to and differences from a conventional business income tax whose profits are ascertained on the basis of the matching principle. Subsequently, the practical differences between the taxes are discussed, as well as their prevalence around the world. A brief section on the major lessons from worldwide experience with VAT concludes.","PeriodicalId":376121,"journal":{"name":"Modernizing VATs in Africa","volume":"124 21 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-07-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121156567","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2019-07-12DOI: 10.1093/oso/9780198844075.003.0016
S. Cnossen
Chapter 16 discusses VAT registration thresholds and the treatment of farmers. A high threshold of, say, US$50,000 or higher, is recommended to keep the number of taxable persons manageable. The VAT on exempt small businesses should be confined to the tax on their inputs. Although voluntary registration is an important safety valve to limit economic distortions, a minimum threshold, as in South Africa, below which registration is not possible, is recommended. A generous threshold without further ado would also be appropriate for the agricultural sector, except that small exempt farmers would have to cope with the cascading effects of the input VAT. Voluntary registration would not work in view of low literacy levels, the absence of basic accounts, and the lack of communication. The solution appears to lie in a combination of a reasonably high threshold (the same as for other small businesses) and the zero-rating of major agricultural inputs, which have no alternative use outside the agricultural sector.
{"title":"Small Businesses and Farmers","authors":"S. Cnossen","doi":"10.1093/oso/9780198844075.003.0016","DOIUrl":"https://doi.org/10.1093/oso/9780198844075.003.0016","url":null,"abstract":"Chapter 16 discusses VAT registration thresholds and the treatment of farmers. A high threshold of, say, US$50,000 or higher, is recommended to keep the number of taxable persons manageable. The VAT on exempt small businesses should be confined to the tax on their inputs. Although voluntary registration is an important safety valve to limit economic distortions, a minimum threshold, as in South Africa, below which registration is not possible, is recommended. A generous threshold without further ado would also be appropriate for the agricultural sector, except that small exempt farmers would have to cope with the cascading effects of the input VAT. Voluntary registration would not work in view of low literacy levels, the absence of basic accounts, and the lack of communication. The solution appears to lie in a combination of a reasonably high threshold (the same as for other small businesses) and the zero-rating of major agricultural inputs, which have no alternative use outside the agricultural sector.","PeriodicalId":376121,"journal":{"name":"Modernizing VATs in Africa","volume":"61 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-07-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131106101","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2019-07-12DOI: 10.1093/oso/9780198844075.003.0015
S. Cnossen
Chapter 15 argues that transactions involved in games of chance should be included in the VAT base, regardless of whether or not lotteries and gambling are subject to externality-correcting excises. The charge should extend to all forms of gaming, except if feasibility considerations (e.g. village cockfights) preclude the effective application of the VAT. The chapter also shows that the reverse-charge approach and the margin method lead to identical outcomes in calculating the VAT liability. To prevent double taxation and diversion of transactions, the VAT paid for the acquisition of non-monetary prizes and awards should be creditable against the VAT on sales of tickets, tokens, and chips. If a casino is part of a larger establishment operated by a registered business, the VAT on a non-monetary prize (say, a night’s stay or meal at a hotel) should be denied to the casino in order to ensure that the prize’s value is taxed once.
{"title":"Lotteries and Gambling","authors":"S. Cnossen","doi":"10.1093/oso/9780198844075.003.0015","DOIUrl":"https://doi.org/10.1093/oso/9780198844075.003.0015","url":null,"abstract":"Chapter 15 argues that transactions involved in games of chance should be included in the VAT base, regardless of whether or not lotteries and gambling are subject to externality-correcting excises. The charge should extend to all forms of gaming, except if feasibility considerations (e.g. village cockfights) preclude the effective application of the VAT. The chapter also shows that the reverse-charge approach and the margin method lead to identical outcomes in calculating the VAT liability. To prevent double taxation and diversion of transactions, the VAT paid for the acquisition of non-monetary prizes and awards should be creditable against the VAT on sales of tickets, tokens, and chips. If a casino is part of a larger establishment operated by a registered business, the VAT on a non-monetary prize (say, a night’s stay or meal at a hotel) should be denied to the casino in order to ensure that the prize’s value is taxed once.","PeriodicalId":376121,"journal":{"name":"Modernizing VATs in Africa","volume":"46 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-07-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133361538","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2019-07-12DOI: 10.1093/oso/9780198844075.003.0012
S. Cnossen
Chapter 12 examines the VAT treatment of immovable property in Africa. In most African countries, housing services—in the form of rents and rental values of owner-occupied property—comprise a sizable part of consumption expenditures. Clearly, housing is too large a sector to ignore in the design and operation of a broad-based, properly functioning VAT. Since residential housing is often an income-elastic item of consumption, exemption of this sector would be regressive with respect to income; in other words, the rich would benefit more than the poor. The chapter starts by setting out how immovable property should be taxed under a pure and a best-practice VAT. This is followed by a review of the actual treatment of immovable property in Africa, including the VAT’s interaction with transfer taxes and stamp duties. Possible directions for reform are considered, before a recapitulation of policy proposals concludes.
{"title":"Immovable Property","authors":"S. Cnossen","doi":"10.1093/oso/9780198844075.003.0012","DOIUrl":"https://doi.org/10.1093/oso/9780198844075.003.0012","url":null,"abstract":"Chapter 12 examines the VAT treatment of immovable property in Africa. In most African countries, housing services—in the form of rents and rental values of owner-occupied property—comprise a sizable part of consumption expenditures. Clearly, housing is too large a sector to ignore in the design and operation of a broad-based, properly functioning VAT. Since residential housing is often an income-elastic item of consumption, exemption of this sector would be regressive with respect to income; in other words, the rich would benefit more than the poor. The chapter starts by setting out how immovable property should be taxed under a pure and a best-practice VAT. This is followed by a review of the actual treatment of immovable property in Africa, including the VAT’s interaction with transfer taxes and stamp duties. Possible directions for reform are considered, before a recapitulation of policy proposals concludes.","PeriodicalId":376121,"journal":{"name":"Modernizing VATs in Africa","volume":"60 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-07-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115746234","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2019-07-12DOI: 10.1093/oso/9780198844075.003.0008
S. Cnossen
Chapter 8 reviews the various stages of economic integration that can be distinguished and discusses VAT (and excise tax) coordination in the presence and absence of border controls. All African countries belong to a regional economic community (REC), and often to more than one. The countries are closely monitoring the remarkable combination of free politics and free economics achieved by the common market (now the single market) of the member states of the EU. Free trade and free competition raise the standards of living in participating member countries. In this setting, tax coordination should ensure that equal conditions for competitors are not distorted by discriminatory tax systems—a criterion that is referred to as tax neutrality. At the same time, however, the participating countries should retain as much tax autonomy as possible in order to be able to pursue their own social and economic policy goals.
{"title":"Economic Integration and Tax Coordination in Regional Economic Communities","authors":"S. Cnossen","doi":"10.1093/oso/9780198844075.003.0008","DOIUrl":"https://doi.org/10.1093/oso/9780198844075.003.0008","url":null,"abstract":"Chapter 8 reviews the various stages of economic integration that can be distinguished and discusses VAT (and excise tax) coordination in the presence and absence of border controls. All African countries belong to a regional economic community (REC), and often to more than one. The countries are closely monitoring the remarkable combination of free politics and free economics achieved by the common market (now the single market) of the member states of the EU. Free trade and free competition raise the standards of living in participating member countries. In this setting, tax coordination should ensure that equal conditions for competitors are not distorted by discriminatory tax systems—a criterion that is referred to as tax neutrality. At the same time, however, the participating countries should retain as much tax autonomy as possible in order to be able to pursue their own social and economic policy goals.","PeriodicalId":376121,"journal":{"name":"Modernizing VATs in Africa","volume":"7 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-07-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129760240","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2019-07-12DOI: 10.1093/oso/9780198844075.003.0010
S. Cnossen
Chapter 10 provides a detailed review and analysis of the manifold non-standard exemptions and zero rates found around the African continent, which are most costly in terms of revenue forgone. One table lists the non-standard exemptions of unprocessed foodstuffs, agricultural inputs, medical supplies, utilities, print, fuel, and some other goods and services on a country-by-country basis. For each item, some indication is provided about the reach of each exemption or zero/lower rate. A second table does the same for the zero or positive but reduced rates on the same items. The chapter concludes with an overview of the VAT reforms in four countries—Benin, Kenya, Senegal, and Tanzania—that have eliminated most, if not all, non-standard exemptions and zero rates, a move that other African countries may wish to consider too.
{"title":"Non-Standard Exemptions and Zero Rates","authors":"S. Cnossen","doi":"10.1093/oso/9780198844075.003.0010","DOIUrl":"https://doi.org/10.1093/oso/9780198844075.003.0010","url":null,"abstract":"Chapter 10 provides a detailed review and analysis of the manifold non-standard exemptions and zero rates found around the African continent, which are most costly in terms of revenue forgone. One table lists the non-standard exemptions of unprocessed foodstuffs, agricultural inputs, medical supplies, utilities, print, fuel, and some other goods and services on a country-by-country basis. For each item, some indication is provided about the reach of each exemption or zero/lower rate. A second table does the same for the zero or positive but reduced rates on the same items. The chapter concludes with an overview of the VAT reforms in four countries—Benin, Kenya, Senegal, and Tanzania—that have eliminated most, if not all, non-standard exemptions and zero rates, a move that other African countries may wish to consider too.","PeriodicalId":376121,"journal":{"name":"Modernizing VATs in Africa","volume":"23 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-07-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133663752","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2019-07-12DOI: 10.1093/oso/9780198844075.003.0004
S. Cnossen
Chapter 4 provides an overview of VATs in Africa, noting their broad characteristics and listing the general issues that arise. Countries with VAT are grouped by the particular regional economic community (REC) of which they are members. Salient features pertaining to the year of introduction, the predecessor sales tax, the range of non-standard exemptions, the rate structures, and the coverage of the excises on luxury goods and services are noted and broadly discussed.
{"title":"Overview of VATs in Africa","authors":"S. Cnossen","doi":"10.1093/oso/9780198844075.003.0004","DOIUrl":"https://doi.org/10.1093/oso/9780198844075.003.0004","url":null,"abstract":"Chapter 4 provides an overview of VATs in Africa, noting their broad characteristics and listing the general issues that arise. Countries with VAT are grouped by the particular regional economic community (REC) of which they are members. Salient features pertaining to the year of introduction, the predecessor sales tax, the range of non-standard exemptions, the rate structures, and the coverage of the excises on luxury goods and services are noted and broadly discussed.","PeriodicalId":376121,"journal":{"name":"Modernizing VATs in Africa","volume":"24 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-07-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133255299","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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