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The Value Added Tax and Developing Countries

Carl Shoup
The World Bank Research Observer
Vol. 3, No. 2 (Jul., 1988), pp. 139-156
Published by: Oxford University Press
Stable URL: http://www.jstor.org/stable/3986437
Page Count: 18
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The Value Added Tax and Developing Countries
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Abstract

The comprehensive value added tax (VAT), now a principal source of revenue for some forty countries, was nowhere to be found only thirty years ago. This article analyzes the reasons for this dramatic change and weighs the advantages and disadvantages of the VAT for developing countries. It points out the choices a government instituting a VAT must make with respect to taxing all final products or only consumer goods, and it offers suggestions on how to treat exports and imports, how to compute the VAT payable, whether to use "exemption" or "zero-rating" approaches, and whether to have one or various tax rates. For countries with a fragmented retail trade the VAT may apply only to wholesale and earlier stages. The article draws no general conclusions on the suitability of the VAT for developing countries, because these countries differ so widely.

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