Prepared by Dale Chua and Rakia Moalla-Fetini.
The existing coupon system to provide subsidies for sugar and rice to the entire population could be piggy backed on to implement this scheme.
Kneller, R, M F. Bleaney, and N Gemmell, 1999, “Fiscal Policy and Growth: Evidence from OECD countries”, Journal of Public Economics, Vol. 74, p171–190.
The large number of rates is a vestige of past reform. When the consumption tax was introduced, quite a few excisable commodities were transferred to become taxable under the new consumption tax bearing different rates. Correspondingly, excises today are levied on only four products.
Under a well-designed VAT, only those businesses that have a relatively high turnover will have to collect the VAT on their sales. The poor are not very likely to shop from such outlets but, rather, would buy from small traders in street corners and so forth. The latter would be excluded from the VAT because of their low turnover threshold.
To limit the revenue impact of VAT refunds for capital goods, some countries mandate that excess VAT credits be carried over to subsequent filing periods rather than be refunded immediately.
The estimate, calculated using 2002 data, is based on the following assumptions: (a) 50 percent of sales of the agricultural sector (which presents virtually all unprocessed food sold to consumers) and 75 percent of trade margins of wholesalers and retailers are exempt from the tax; and (b) a leakage of 10 percent due to evasion.