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Lessons from International Experiences with Multi-Level Indirect Taxation

2. Contents. IntroductionValue-added tax (VAT) designVAT coordination and harmonizationExperiences in Canada, India, Argentina, Australia, and GermanyConcluding remarks. 3. 1. Introduction. World Bank project reports, 2007:Background: Multi-Level Indirect Taxation (May);International Exper

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Lessons from International Experiences with Multi-Level Indirect Taxation

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    1. Lessons from International Experiences with Multi-Level Indirect Taxation Pierre-Pascal Gendron Humber Institute of Technology & Advanced Learning, Toronto, Canada Reforma Tributária e Transferęncias Fiscais entre Uniăo, Estados e Municípios

    2. 2 Contents Introduction Value-added tax (VAT) design VAT coordination and harmonization Experiences in Canada, India, Argentina, Australia, and Germany Concluding remarks

    3. 3 1. Introduction World Bank project reports, 2007: Background: Multi-Level Indirect Taxation (May); International Experiences with Multi-Level Indirect Taxation (June); International Best Practices with Multi-Level Indirect Taxation (June). Recent developments in Canada, India, and Brazil.

    4. 4 2. VAT Design: Key Issues Rates. Registration thresholds. Exemptions. Zero-rating. Coordination with excise taxes. Treatment of international trade.

    5. 5 2. VAT Design: Should We Tax It? Agriculture. Public sector, non-profit and charitable organizations. Aid and foreign-financed projects. Financial services. Real property.

    6. 6 2. VAT Design: New Issues Digital economy. Information technology in administration. “Administrability” as a planning criterion. Subnational VATs: Interstate (or inter-provincial) trade; Taxation of services (issue in India and Brazil).

    7. 7 3. VAT Coordination & Harmonization Solutions to multi-level taxation problems: Centralization; Coordination and/or harmonization; Models to handle cross-border trade; Uncoordinated policies and procedures.

    8. 8 3. VAT Coordination & Harmonization Coordination: ex ante cooperation, maximizes the benefits of reform. Harmonization: ex post convergence in tax systems. Costs of uncoordinated policies? Large resource costs from administration and compliance, and too much tax competition.

    9. 9 3. VAT Coordination & Harmonization Principles for harmonization: Should lead to simplification; Should respect state autonomy; One agency should administer a given tax. Process of harmonization acknowledges initial differences in tax systems in different jurisdictions.

    10. 10 3. VAT Coordination & Harmonization Oldest example: European Union. Limitation: there is no “EU” or federal VAT. Let’s turn to jurisdictions where different levels of government share the sales tax field…

    11. 11 4. Canadian Experience Multi-level taxation in both direct and indirect tax fields. Five different sales tax regimes: Federal Goods and Services Tax (GST=VAT); Retail Sales Taxes (RSTs); “Harmonized Sales Tax” (HST=VAT); Québec Sales Tax (QST=VAT); Alberta (no tax!).

    12. 12 4. Canadian Experience Two very different harmonization models: QST (1992): dual VAT; HST (1997): common VAT with revenue-sharing. Despite a number of differences, there is consistency in rates, exemptions and zero-ratings. Discussions regarding harmonization of 5 remaining RST provinces are ongoing.

    13. 13 4. Canadian Experience Success factors for harmonization: Federal-provincial cooperation; “Hitching” of federal and provincial reforms; Federal transitional assistance for revenue losses; Transition and adjustment period.

    14. 14 4. Indian Experience Complexity of structure and allocation of taxing powers similar to Brazil. Difficult partial harmonization in 2005, a work in progress. In spite of all this and serious constitutional obstacles, the government plans to adopt a GST by 2010.

    15. 15 4. Indian Experience But state VATs have serious flaws: Narrow bases since states do not have the power to tax services in a comprehensive way; Poor design (multiple and differentiated rates, multiple exemptions, poor treatment of excisable goods, etc.); Residual element of origin taxation; Different definitions.

    16. 16 4. Argentinean Experience VAT at central level. “Gross Receipts Tax” (turnover tax) at provincial level. VAT revenue shared with provinces and City of Buenos Aires. Obstacles to reform: Enabling provincial VATs based on destination principle, and federal compensation for revenue losses.

    17. 17 4. Australian & German Experiences Federal sales tax only: GST in Australia, VAT in Germany. Pure revenue-sharing based on: Equalization (Australia); Formula (Germany). Despite the considerable advantages for administration and compliance, it’s not for Brazil…

    18. 18 5. Concluding Remarks

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