IMF Working Papers

Encouraging Formal Invoicing and Reducing the VAT Impact on Low-Income individuals

By Ricardo Fenochietto, Juan Carlos Benitez

February 19, 2021

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Ricardo Fenochietto, and Juan Carlos Benitez. Encouraging Formal Invoicing and Reducing the VAT Impact on Low-Income individuals, (USA: International Monetary Fund, 2021) accessed November 23, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper analyses and compares two different groups of tools, the first to encourage the use of invoices (or payment systems) and the second to refund the VAT to low-income individuals. The analysis contributes to the existing literature by providing a clear characterization between these two groups of tools that are too often misunderstood and offers clear guidance to policymakers on the benefits and pitfalls of them based on available empirical studies and novel data analysis. Briefly, the first group includes a set of regressive and distortive tools (such as, allowing deducting the VAT paid on personal consumption from the PIT and reducing the VAT rate for using electronic means of payments or registration), while the second group includes tools that are less distortionary and improve income distribution (tax credits and VAT rate reduction targeted only at low-income individuals). This paper also finds that allowing the deduction of personal consumption against the PIT’s taxable base (i) did not impact positively the VAT revenue in Guatemala and (ii) worsens the income distribution in Ecuador.

Subject: Consumption, Credit, Income, Money, National accounts, Personal income tax, Taxes, Value-added tax

Keywords: Asia and Pacific, Charge VAT, Consumption, Credit, Electronic invoice, Europe, Global, Income, Middle East and Central Asia, Personal income tax, PIT base, PIT liability, PIT revenue, PIT tax credit, Reduction program, Value-added tax, VAT compliance, VAT credit, VAT deduction from PIT, VAT impact on low-income individuals, VAT impact on low-income individuals., VAT invoice, VAT non-compliance, VAT rate reduction for electronic payments, VAT revenue, Western Hemisphere, WP

Publication Details

  • Pages:

    31

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2021/040

  • Stock No:

    WPIEA2021040

  • ISBN:

    9781513569970

  • ISSN:

    1018-5941

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