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Mario Pessoa, Andrew Okello, Artur Swistak, Muyangwa Muyangwa, Virginia Alonso-Albarran, and Vincent de Paul Koukpaizan
The value-added tax (VAT) has the potential to generate significant government revenue. Despite its intrinsic self-enforcement capacity, many tax administrations find it challenging to refund excess input credits, which is critical to a well-functioning VAT system. Improperly functioning VAT refund practices can have profound implications for fiscal policy and management, including inaccurate deficit measurement, spending overruns, poor budget credibility, impaired treasury operations, and arrears accumulation.This note addresses the following issues: (1) What are VAT refunds and why should they be managed properly? (2) What practices should be put in place (in tax policy, tax administration, budget and treasury management, debt, and fiscal statistics) to help manage key aspects of VAT refunds? For a refund mechanism to be credible, the tax administration must ensure that it is equipped with the strategies, processes, and abilities needed to identify VAT refund fraud. It must also be prepared to act quickly to combat such fraud/schemes.
International Monetary Fund
This Selected Issues paper analyzes Haiti’s external competitiveness. The analysis shows that the country has been experiencing equilibrium real exchange rate appreciation pressures, which have originated more recently from the rising inflow of transfers. The paper discusses avenues for further developing Haiti’s monetary policy framework to help consolidate a stable low-inflation environment and support deepening domestic financial markets. The analysis suggests that Haiti’s monetary policy regime could be strengthened through a two-step approach. The paper also focuses on options to increase domestic revenues as a means of funding priority expenditures.
Abhijit Sen Gupta
This paper contributes to the existing empirical literature on the principal determinants of tax revenue performance across developing countries by using a broad dataset and accounting for some econometric issues that were previously ignored. The results confirm that structural factors such as per capita GDP, agriculture share in GDP, trade openness and foreign aid significantly affect revenue performance of an economy. Other factors include corruption, political stability, share of direct and indirect taxes etc. The paper also makes use of a revenue performance index, and finds that while several Sub Saharan African countries are performing well above their potential, some Latin American economies fall short of their revenue potential.
Mr. Jon Strand and Mr. Michael Keen
This paper examines the case for internationally coordinated indirect taxes on aviation (as a source of general revenue-not (necessarily) as a source of development finance). The case for such taxes is strong: the tax burden on international aviation is currently limited, yet it contributes significantly to border-crossing environmental damage. A tax on aviation fuel would address the key border-crossing externalities most directly; a ticket tax could raise more revenue; departure taxes face the least legal obstacles. Optimal policy requires deploying both fuel and ticket taxes. A fuel tax of 20 U.S. cents per gallon (10 percent, at today's fuel prices, corresponding to assessed environmental damage), or alternatively ticket taxes of 2.5 percent, would raise about US$10 billion if imposed worldwide, and US$3 billion if applied only in Europe.
Mr. Alfredo Baldini
This paper analyzes the fiscal policy in Venezuela during 1991-2003, by using a number of statistical approaches to analyze trends and cycles of economic output and fiscal outcomes. The business cycle features a strong dominance of short-term cyclical components-each cycle having an average duration of about two to three years. However, the cyclical volatility of non-oil sector GDP is more than two times as large as the volatility of oil sector GDP. On the fiscal side, while oil revenues are independent of the business cycle, all the other main fiscal variables exhibit strong procyclicality. In particular, fiscal procyclicality is higher during good times than bad times, which could be related to the existence of "voracity effects." The discretionary component of fiscal policy is as volatile as the component induced by the business cycle.
Ms. Janet Gale Stotsky and Ms. Asegedech WoldeMariam
Central American tax systems are modern in their orientation, though there remains scope for beneficial reform. Value-added taxes are the mainstay of collections, but their performance varies. Income and property taxes remain relatively underused and should apply to higher income taxpayers more comprehensively. Tax reform needs to be mindful of global competition. Continuing improvement in administrative performance is also essential.
Mr. Parthasarathi Shome
From the mid-1980s to early 1990s, Latin American tax policy provided rich lessons for other reforming countries. Meaningful innovations led also to perceptible revenue gains. Later in the 1990s, tax policies began to drift. Shining examples of fundamental reform seemed to lose their luster. Revenue in terms of GDP also stagnated, partly reflecting over-reliance on consumption taxes and neglect of taxable capacity on incomes. The stagnation has been exacerbated by excessively simplified administrative practices. Based on these developments and on the limited taxability of internationally mobile capital, the paper anticipates a likely tax structure for the new century.
International Monetary Fund
This paper reviews recent experience of technical assistance on tax policy provided by the Fiscal Affairs Department to a selected but diversified group of countries that differ both in their geographical locations and in the nature of their economies. The review finds in the technical assistance advice both common themes applicable to all countries and special elements designed to address issues unique to a specific country, or a subset of countries. It also attempts to assess, to the extent possible, the policy impacts of such advice.
Mr. Parthasarathi Shome
Tax reform in Latin America during the 1980s emphasized broad-based, low-rate consumption taxes over steeply progressive income and property taxes, primarily to simplify the tax structure and facilitate tax administration. While tax reform need not necessarily raise tax-to-GDP ratios, countries that undertook tax reform experienced a higher revenue gain in terms of GDP relative to those that did not. Tax reform issues during the 1990s will include a minimum income tax, alternative corporate taxes (cash flow tax, assets tax), capturing difficult tax bases (financial intermediation, property), environment taxes, extending withholding as a taxing mechanism, and tax harmonization.
Ms. Milka Casanegra de Jantscher
During the 1970s and 1980s, many developing countries enacted value-added taxes (VATs) as a part of their fiscal structures. The productivity of this source of revenue has depended in large part on the facility with which the tax can be administered. Single rate VATs have proved easier to administer than those with multiple rates. Exemptions and zero-rating tend to complicate administration. Because small taxpayers are so numerous in developing countries and administrative resources so limited, the treatment of small taxpayers has required special attention. The difficulty of taxing services has led most developing countries to omit all but a few services from the tax base. Administrative constraints are the main reason why the VAT that prevails in developing countries is usually very different from the broad-based and neutral tax discussed in public finance treatises.