Broader research

Vital to enriching TAXDEV’s work with partner governments is a broader programme of research on taxation in low- and middle-income countries. This research draws on the findings from the analysis in partner countries, as well as theoretical and empirical evidence from elsewhere, to further develop the evidence base, (providing valuable insights for a wider range of priority countries with varying political systems, institutional frameworks and socio-economic characteristics).

 

At the beginning of the programme we published a document which outlines our focus until March 2018:

  • Firstly, we are examining  the extent to which preferential rates of VAT for certain goods and services, consumed disproportionately by poorer households, do actually help poorer households. We do this by contrasting the costs and distributional effects of the preferential rates with other, more targeted, forms of redistribution.
  • Secondly, we are investigating the effect of VAT on firms’ compliance with the tax system and on their production decisions, contrasting it with the effect of simplified tax systems. Thus, we will generate evidence on the costs and benefits of operating simplified tax schemes for small firms, and setting relatively high VAT thresholds.
  • Thirdly, we are exploring explore more broadly the responses of firms to tax policy and administration thresholds. In particular we hope to estimate the extent to which firms bunch around such thresholds, and, if possible, investigate whether such responses reflect changes in reporting/evasion or real business behaviours.
  • Finally, we plan to  examine issues related to special corporate tax regimes, in the context of international corporate tax competition.

Publications

Briefing Note: Redistribution, efficiency and the design of VAT: a review of the theory and literature

The simplest form of value added tax (VAT) – and the form often advocated by international organisations – is one with a broad base and a single (‘uniform’) rate. In practise, most countries exempt and/or apply lower VAT rates on certain categories of goods and services. In this note authors summarise the pros and cons of such ‘VAT rate differentiation’ that are highlighted in the economics and taxation literatures, paying particular attention to the applicability and relevance of each factor for low- and middle-income countries.

Considering first the case for applying different rates – including zero rates – to different goods and services, this briefing note highlights theoretical arguments based on economic efficiency and a more practical redistributive argument.

Considering the case for exempting particular goods and services from the VAT system entirely, the authors discuss a number of ‘special cases’ (such as small firms, public services and financial services) before focusing on the administrative and efficiency issues posed by exemptions more generally.