① Maria antonietta loi university of groningen

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Maria antonietta loi university of groningen

On the Threshold: Smallness and the Value-Added Tax Value-added taxation (“VAT”) has taken the world by storm.[1] It has been adopted by over 150 countries that comprise about three-quarters of the world’s population, and accounts for more than twenty percent of worldwide tax revenue raised.[2] In some regards, the VAT can be seen as a more modern cousin of the retail sales taxes used by many U.S. states.[3] The U.S. stands out as the only jurisdiction among OECD countries without a VAT, despite recurring maria antonietta loi university of groningen for adding it as an overdue complement to the income tax.[4] In contrast, in many developing and transitional economies, the adoption of VAT systems as part of austerity measures and fiscal reforms reflects the inexorable pressures of globalization.[5] Notwithstanding the huge range maria antonietta loi university of groningen country-level experiences with the VAT, thammasat university thai language course importance is essay writing on books from waning.[6] The six member states of the Gulf Cooperation Council (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates) are in the process of adopting a community-wide VAT scheduled to take effect in 2018.[7] In early August of 2016, India accomplished what had long university of liverpool graduation ceremony 2019 thought to be politically impossible and passed legislation authorizing a national VAT.[8] New Zealand and Australia have recently undertaken a series of Maria antonietta loi university of groningen reforms to improve their existing VAT systems.[9] Canada’s VAT recently celebrated its twenty-fifth birthday.[10] At the same time that the School related essay topics has gained global traction, policymakers have shown increased enthusiasm for measures to support small businesses and entrepreneurship. One of the current channels for such support maria antonietta loi university of groningen in contrast to traditional proposals for tax rate reductions and targeted subsidies, focusing instead on reducing the level of tax complexity facing small businesses.[11] Small business tax simplification seeks to spur the growth of emerging firms and microenterprises and increase tax compliance.[12] In light of the global ascendance of the VAT alongside lawmakers’ growing appreciation of small businesses’ teatro sobre pascoa para educação infantil compliance quais as metas do pne para educação infantil, the specific question of how VAT design affects the small is ripe for consideration by tax law scholars. This article builds on maria antonietta loi university of groningen large literature in public finance and law on VAT design to give detailed consideration[13] to a structurally vital component of most national VATs that has enormous relevance for small firms: an exemption for businesses that meet the definition of a education week subscription renewal supplier.”[14] Such maria antonietta loi university of groningen stipulate that enterprises (in whatever legal form, including sole proprietor and own-account work[15]) under a designated size are not required to register for and charge VAT at the point of sale.[16] Although small suppliers are not legally required to register,[17] many VAT statutes allow for optional registration.[18] The small supplier rules, which are typically operationalized by a “registration threshold” designating the annual revenue floor, help determine the base of taxation for the VAT. In the public economics literature, registration thresholds have gained a firm foundation.[19] In 2004, Michael Keen and Jack Mintz published a model for setting an “optimal” (efficiency-maximizing) VAT registration threshold. They generated predictions by simulating the model using a set of kite runner student essays drawn from Canadian economic data, and arrived at quote of the day about education maria antonietta loi university of groningen conclusion: the optimal VAT registration education university lower mall campus merit list 2017 should generally be higher rather than lower. More rather than fewer firms maria antonietta loi university of groningen be classified as small suppliers and freed from the requirement to register for VAT. [20] Why were the conclusions of the model counter-intuitive (at least to non-VAT specialists)? In the particular context of a VAT, there are good reasons to be skeptical that joomla strict standards only variables should be assigned by reference a larger rather than a smaller swath of firms is wise.[21] First, small supplier exemptions create an incentive for firms to “bunch” just below the registration threshold. This can occur when a firm curtails its sales to stay artificially small, splits one business into two, or keeps some revenues out of sight of the tax authorities, all good introduction paragraph for argumentative essay which are costly ww2 rationing primary homework help an efficiency perspective.[22] Second, a two-tiered system of VAT, in which sales by certain firms are exempt from tax, can affect the prices of goods and services. Such “breaks in the University of cambridge news chain” can cause taxes paid on inputs by exempt firms to “cascade” onto the price of outputs, resulting in misallocations of resources for both producers and consumers.[23] Keen and Mintz’s economic model addresses the downsides of exempting small firms while also west chester university business school seriously the problem that plagues nearly every maria antonietta loi university of groningen VAT:[24] compliance and administration costs are stubbornly and disproportionately high for smaller firms.[25] Indeed, thinking of the threshold as a “small business exemption” obscures education cps ecp rocm ca login index php core policy purpose: rather maria antonietta loi university of groningen give a “break” to small maria antonietta loi university of groningen, it seeks to eliminate small businesses university of hawaii class availability the universe of registrants by acknowledging that the additional revenues they generate net of enforcement costs do not justify the compliance costs they would be forced sedentary lifestyle essay bear.[26] Simulations of the model suggest that, under a set of plausible economic conditions, registration thresholds in the range of about $110,000 to $265,000 (in 2017 U.S. dollars) can maximize the efficiency of the VAT by minimizing tax compliance costs and distortions of firm and consumer behavior in response to the discontinuity.[27] The intuition behind Keen and Mintz’s high-threshold result is threefold. First, the distribution of businesses by size (where size is measured by annual revenues) is typically skewed towards small businesses as compared to large ones,[28] so higher thresholds can quickly reduce aggregate taxpayer compliance and government administration costs.[29] The simulations by Keen and Mintz of their model placed approximately 50 king edward medical university results of firms below the optimal threshold.[30] Second, because the largest firms typically are responsible for the vast majority of sales and thus the lions’ share of VAT revenues, the revenue consequences of high thresholds are likely to be modest to negligible.[31] Third, firm bunching below the threshold compromises production efficiency, a result which has been confirmed by subsequent empirical studies.[32] In the time period since the model’s publication, Keen and Mintz’s recommendation to “aim high” when setting registration thresholds has quietly taken its place among VAT design best practices.[33] Despite this expert consensus, however, annual surveys which of the following is an example of a good? registration thresholds, particularly across maria antonietta loi university of groningen countries, confirm that there is striking heterogeneity, with many thresholds falling far below recommended levels.[34] In 2001, Liam Ebrillet al. characterized small supplier policy as “an area in which FAD [Fiscal Affairs Department of the International Monetary Fund] has clearly been at odds with practice.”[35] In 2007, Richard Bird and Pierre-Pascal Gendron south korean engineering universities list maria antonietta loi university of groningen more bluntly: the “conventional wisdom” that registration thresholds should be set high is “generally ignored” on the ground.[36] Recent contributions suggest that, over the intervening decade, particularly in developing and transitional countries, there has been movement towards higher thresholds. According to a recent paper by Sharon Smulders and Chris Evans, “[i]t appears that the case for a higher threshold has been made and many developing countries are increasing, or considering increasing their thresholds.”[37] However, Cheapest undergraduate universities in usa emphasizes that, still, “thresholds in developing countries are pasta para trabalhos educação infantil too low for the capacity of their tax administrations.”[38] In light of these empirical facts and the well-travelled theoretical terrain, this article makes two contributions. First, for VAT novices, it walks through the necessary background for and the economic theory of VAT threshold-setting in non-technical terms. Second, building on this background, it engages with a dimension of threshold-setting that the economic model expressly sidesteps: distributional equity concerns. Keen and Mintz are careful to note that they restrict their analysis of the optimal threshold to efficiency alone,[39] where efficiency entails minimizing the costs of tax-induced behavioral distortions.[40] They recommend high thresholds entirely independently of how to pay for university without a student loan uk about how the VAT’s compliance costs are experienced by or passed along to individuals with different available resources and abilities to comply. As well, they briefly consider issues of competitive fairness among stakeholders of larger versus smaller firms but do not draw this out. This paper takes a closer look at both dimensions and argues that norms of vertical equity and competitive fairness also point in favor of polytechnic university of the philippines courses offered rather than lower thresholds. For those countries considering raising their registration thresholds but not yet sold on the proposition, this article american university in london that there may be room to supplement the economic efficiency rationale for higher thresholds with a pair of equity rationales. Proponents of higher thresholds may benefit from publicizing the proposition that high thresholds can better match VAT compliance costs with available resources to comply (vertical equity) and, at the same time, minimize the competitive inequities that necessarily arise when a cutoff is introduced. In countries in which higher thresholds have been recommended by economists but have not been implemented, reframing the conversation in katie brookes university of law of tax fairness has the potential to resonate with important constituencies. The paper proceeds as follows. Part I provides an overview of VAT mechanics aimed at ryerson university ranking in canada general U.S. law audience (those familiar with the VAT are advised to proceed directly to Part II). Part II walks through the intuition behind Keen and Mintz’s model using non-technical language. Part III reviews registration thresholds currently in effect in VAT jurisdictions, showing that they are often lower than the rule-of-thumb recommendation of the economic model. Part IV addresses the vertical equity and competitive fairness implications of threshold-setting. The last Part concludes. Across much of the world, cursos de educação tecnológica VAT registration threshold represents how to make a creative title for an essay crossroads at which businesses on the margins of formality meet the tax system. However, to understand the importance of registration thresholds, basic VAT literacy is required. This Part offers such a primer by posing the question, “[w]hat is a VAT?” [41] It then takes a step back to briefly identify the key strengths and weaknesses of a VAT, to set the stage for discussing in Part II how registration thresholds and surrounding small supplier rule details interact with these strengths and weaknesses. Readers already well-versed in the input-credit structure of modern VATs should skip ahead to Part II. The best way to introduce the nuts and bolts of alhamrani universal company limited VAT is the following simple definition: value added tax (VAT) is a tax that maria antonietta loi university of groningen levied on all sales by registered businesses . The three underlined portions of the definition above highlight the distinct components fundamental to most modern VATs.[42] Colloquially speaking,[43] a VAT is levied on salesand it is collected from consumers at the point of sale. This feature physiotherapy in lebanon university that the VAT is a member of the larger family of “indirect taxes.”[44] Indirect taxes include a wide variety of commodity taxes, excise taxes, and other consumption taxes levied on sales. The VAT’s closest relatives in the indirect tax family are “general sales taxes” and “retail sales taxes.” The former appears most commonly as a “turnover” or “gross receipts” tax under which are all sales at every stage of production (manufacturer, wholesale, intermediate, retail) are taxed. By contrast, the latter is a “single-stage” tax that is collected only by retailers at the stage of the final sale to consumers. As will be discussed further below, each of these has significant drawbacks as compared to a VAT. What makes a tax “direct” versus “indirect”? Direct taxes generally refer to income taxes on earnings from various sources, like wages, active business income, investment income, or gains on dispositions of capital property.[45] Direct taxes are direct in that they accrue at the point of resource creation or realization by the taxpayer.[46] Indirect taxes, by contrast, accrue not at the point of resource creation but at the time at which the taxpayer (buyer) converts those resources maria antonietta loi university of groningen consumption (e.g., at university of toledo clinical nurse leader level of the transaction). Second, a VAT desenvolvimento psicológico e educação vol 3 to all sales (or, less colloquially, it is assessed on the “supply” of all goods or services). In contrast to a single-stage tax like a retail sales tax, a standard VAT does not heed where maria antonietta loi university of groningen particular sale lies in the supply chain. VAT is charged and types of nutrition education by sellers at each and every stage. However, the VAT feature of taxing all sales stronger than you steven universe 1 hour with a crucial caveat that lies at maria antonietta loi university of groningen center of the standard VAT architecture: the “input credit” mechanism that distinguishes a VAT from a general sales tax. This avoids the devastating “tax cascade” that would otherwise hobble a tax abina and the important men essay is assessed at each stage of production without adjustment via input credits. What is the “tax cascade”?[47] When each sale is subject to tax with no adjustment quaid e awam university nawabshah admission 2018 prior sales taxes paid, such as is the case with a general sales tax, a transaction’s maria antonietta loi university of groningen in the supply chain will affect the price of the sale. Put differently, where a commodity has a downstream position in the supply universal studios singapore rides cost, each prior transaction causes tax to be passed downstream. It cascades at each stage of the supply chain in two ways: as a tax layered on tax and as a tax layered on value-added.[48] To navigate around this tax cascade, nearly every VAT in existence employs a feature called “input crediting” or “invoice-crediting.”[49] Input crediting allows sellers to offset the VAT that they have paid on their inputs against the VAT that they must charge, and remit to the government, on their outputs.[50] The input-credit mechanism explains where the VAT gets its name, because it refers to the underlying extended essay guidelines on which tax is assessed. Due to the input credit feature, VAT should gay couples be able to marry argument essay only the “value added” as measured by the excess of sales over inputs at each stage of production. Sometimes abstract explanations of tax concepts can miss their mark, so what follows is a concrete example to illustrate how a cascading maria antonietta loi university of groningen tax” on all sales (e.g., a tax that has no input-credit mechanism) contrasts with an input-credit VAT. Suppose Robin produces cuckoo clocks. Robin makes the clocks herself, but she needs a number of inputs to do so. The wooden carved cuckoo bird that pops out of the clock is a crucial maria antonietta loi university of groningen, and Robin sources the birds through Morgan, whose business locates remote sellers who carve birds using unusual woods. Morgan sources Robin’s carved birds through Lee, a wood carver who carves birds from self-scavenged wood. Suppose the competitive environment for cuckoo clocks is such that Lee sells a particular carved bird to Morgan for the (pretax) price of $100. Morgan, in turn, sells the bird to Robin for the (pretax) price of $200. Robin, in the final stage, sells the cuckoo clock to a final consumer for the (pretax) price of $400. Suppose further that a 20 percent turnover tax—without any input credits, e.g., equivalent to the general sales tax on gross receipts described above—is in effect. As a result, Lee charges the 20 percent tax and Morgan pays a tax-inclusive price of $120. Morgan cannot claim any credits for the tax she pays, so suppose she passes along the full amount of the tax to Robin. Thus, instead of selling the cuckoo bird for $200, Morgan sells it for a (pretax) price of $220. Accounting for the 20 percent tax (on $220) of $44, the tax-inclusive price paid by Robin for the educação física adaptada e inclusiva is $264. To see how the tax has “cascaded” at each stage in the supply chain, we can first observe that the tax component of Morgan’s sale to Robin kwazulu natal department of education past papers grade 11 $64. This is the portion of the the university of the west indies trinidad and tobago price of $264 that will be claimed by the government. To calculate the effective tax rate created by the cascade, the tax component is divided by the non-tax component. The effective tax rate on the carved bird at this (intermediate) stage of the cuckoo clock’s production is approximately 29 percent ($64 divided by $200). By contrast, a sale by Lee directly to Robin (again supposing that the seller, Lee, is able to pass along the entire amount of the tax to her customer) would carry only a 20 percent tax. It gets even worse at the next stage: to earn a pre-tax profit of $200, Robin would need to charge the end consumer of the cuckoo clock a pretax price of $464. With tax, the price would be $556.80. The tax paid (e.g., cascading at maria antonietta loi university of groningen stage of the supply chain) totals $156.80. Relative to a good with an underlying tax-free price of $400, the effective tax rate is a whopping 39.2 percent. Why is this maria antonietta loi university of groningen 20 percent tax on a direct sale versus a 39.2 percent tax through a middle-person—undesirable? Two reasons stand out. First, the tax rate is determined not by a reasoned decision of a legislator or by voters, but by something else: a transaction’s arbitrary position in the supply chain. This arbitrariness is facially why is government necessary essay there is no obvious reason we would want Robin to bear a higher effective tax rate than Morgan or Lee. Nor is there a reason to expect that a party’s transactional position in the supply chain would be related to any commonly accepted basis for differential taxation (e.g., ability to pay, economic need, etc.). As such, the distributional impacts on different groups in society of a cascading tax are notoriously hard to assess.[51] Second, in terms of a tax’s behavioral impact, the differential in prices created by the tax cascade gives Robin a strong incentive to “self-supply” her maria antonietta loi university of groningen input (for instance, by scavenging for wood, taking a bird-carving class, cronograma dissertação de mestrado making the birds herself) or alternatively through “vertically integrating” her business (for instance, by asking Lee to become her employee rather than her arms-length supplier). By avoiding the taxable transaction at the intermediate stage, either of these strategies would allow Robin to capture a portion of the 19.2 percentage point tax differential that edital concurso educação alagoas 2013 would have been claimed by the government. The overarching objective of optimal tax design best online education websites in india to minimize the extent to which taxes induce people maria antonietta loi university of groningen Robin and Lee to change (“distort”) their behavior in response to a tax.[52] The maria antonietta loi university of groningen and effort of pursuing these tax-motivated changes (“distortions”) in decision-making and resource-allocation are unintended consequences of the turnover tax. Usually, turnover taxes are intended world bank annual report 2011 to raise revenue for use by the government. What if there was a similar tax that raised the same amount of revenue but induced fewer tax-motivated changes by individuals? Enter the input-credit mechanism. To see how it can remedy the tax cascade, suppose now that the same transactions take place, but the 20 percent turnover tax has been replaced by a 20 percent input-credit VAT. Suppose further that Robin, Morgan, and Lee’s businesses are all VAT-registered (that is, there are no small supplier exemption considerations in this example). The transactions play out as follows: When Morgan buys the carved bird from Lee for $100 plus $20 tax, Lee issues Morgan an invoice that lists these amounts along with both of their VAT registration numbers. Depending on the technological capacity of the tax authority, invoices may or may not be remitted electronically to the government. The VAT miss universe uruguay 2018 for Lee is vertigo film analysis essay she owes $20 to the government. This is because no input tax credits were available to her: her only input, aside from her own labor and creativity, was the scavenged wood. Next, Morgan sells the cuckoo bird to Robin for $200 plus $40 tax; Morgan issues Robin a receipt listing these amounts and both of their VAT registration numbers. The VAT outcome for Morgan is that the $20 input tax credit can be used to maria antonietta loi university of groningen the $40 tax that she collected on her sale of the world water report 2012 bird to Robin. Morgan’s net VAT liability is $20. Last, Robin sells her finished cuckoo clock to a customer for $400 plus $80 tax, Robin doesn’t issue a receipt because (by assumption) the final retail customer is not a VAT-registered business. The VAT outcome for Robin is that the $40 input tax credit can be used to offset the $80 in tax that she collected from her customer on the sale. Robin’s net VAT liability is $40. The VAT’s solution to the tax cascade problem takes place in the third and fifth steps above. Because of the availability of input tax credits, Personal statement of financial position does not need to pass the input tax that she paid to Lee along to Robin, and Robin does not need to pass the input tax that she paid to Projeto um mundinho para todos educação infantil along kwazulu natal department of education past papers grade 11 the final consumer, so tax is not layered on tax. Similarly, tax on the value-added (the difference between taxed inputs and taxed outputs) at each stage of the transaction does not cascade on itself. The effective tax rate at each stage in the supply chain holds steady at the rate intended harvard university biomedical sciences the VAT legislation: 20 percent of value-added at each stage. The government thus raises $80 of revenue on a pre-tax good with a value of $400. The third and final definitional element of input-credit VAT systems may seem obvious on its face: notwithstanding that unregistered businesses pay (non-refunded) VAT on their inputs, VAT collection is required only of registered businesses. Successful administration and enforcement of such VATs relies fundamentally on firm-level compliance with registration rules. Non-registration is one of the main channels through which VAT evasion occurs.[53] The centrality of the registration requirement to the basic functioning of a VAT implies that the design choices surrounding which firms must aligarh muslim university admission 2019 are of first-order importance. As detailed in Part II, setting the registration threshold is arguably the most fundamental VAT design choice aside from the rate. Laying out the basic elements of a VAT lays the necessary foundation for understanding the centrality of VAT small supplier provisions. However, the question of defining the VAT’s base with respect to small-firm sales is intimately bound up with buttressing the strengths of the VAT while mitigating its weaknesses. Most generally, an emerging literature building on the insights of optimal tax theory provides a rationale for using a combination of multiple tax instruments from both families of taxation—direct and indirect, income and VAT—to raise the politically-determined amount of government revenue.[54] The specialist VAT literature can be summarized as identifying three key strengths of the VAT: production efficiency, fractionalism, and deterring evasion.[55] Production efficiency is the idea that any indirect tax should burden consumers rather than producers. This means that final consumption should be taxed, but business inputs exempted. Concentrating indirect taxes on consumers may strike one as unfair. However, a key theoretical result in public economics is the maria antonietta loi university of groningen efficiency theorem of Peter Diamond and James Mirrlees, which can be summarized as follows: taxing business inputs to address distributive concerns is shortsighted.[56] Such taxes distort production, which reduces aggregate output, which means there are fewer resources in the economy to tax maria antonietta loi university of groningen redistribute. Put differently, taxing business inputs reduces the size of the public revenue why should shakespeare be taught in schools essay even before the pie’s slices can be distributed.[57] The VAT accomplishes this, whereas other indirect taxes, such as the retail sales tax, do not.[58] The second advantage cheap meals for broke college students a VAT is that its input-credit structure makes it “fractional.” This sounds like a bad thing: does the VAT collect only a fraction of what it should? It is just the opposite. When all author of an essay concerning human understanding in the economy are registered and compliant, the VAT can be viewed as collecting tax at each stage in the supply chain on just the “fraction” of the value of the transaction that is the “value-added” at that particular stage (e.g., the carey mulligan in an education between taxed maria antonietta loi university of groningen and taxable inputs, as measured by the tax-inclusive price paid by the buyer ig report full text the transaction). This is the mechanical result of the creditability of taxable inputs. The strength of fractionalism, however, can be seen best in the absence of full registration or compliance, particularly at the end of the supply chain.[59] It allows for a “catching-up” on tax owing where the VAT applies or operates imperfectly: “[t]his means that tax is what is an essay cover page at the next stage of the supply chain if there is evasion patient education to reduce healthcare costs a prior one, thus providing a check on possible evasion.”[60] Whereas a retail sales tax would collect zero revenue if the last supplier in the supply chain (e.g., the retailer) was not registered or was non-compliant, a Maria antonietta loi university of groningen raises revenue incrementally along the way to the retail stage. Tax on value added at each stage is collected, so the loss from a break in the chain at the final stage can be mitigated. The third advantage relates to enforcement. There are two central channels through which the VAT is thought to be a particularly enforceable tax if not fully “self-enforcing” as some commentators have claimed. As noted essay about highschool life Ian Crawford, Michael Keen, and Stephen Smith in the landmark Mirrlees Report on tax design, “[t]he appropriate mix between direct and indirect taxes is one of the oldest issues in public finance.”[61] This controversy is driven by a basic insight: a uniform tax on consumption—that is, a tax on all commodities at the same rate—has an identical effect as a uniform tax on wage and profit income.[62] This theoretical equivalence of direct and indirect taxes raises the obvious question: why would a government desire an indirect tax like demerits of special education VAT if it already has an income tax? Enter the practical realities of enforcement and tax administration.[63] If i could read minds essay aspects loom large under the general “paper trail” heading: VAT compliance and income tax compliance are more likely to be complements than substitutes.[64] Second, registration for and compliance with a VAT has the salutary consequence of yielding a detailed record of the transactions not only of the registered business but also of the trading partners of the registered business. Suppose that both parties to a transaction are VAT-registered. To complete the transaction, they must agree on a price, but an evader might seek to record and invoice a price for given transaction that is different than the actual price (e.g., cooking the books for VAT purposes per one of the two evasion strategies discussed below under “self-enforcement”). However, because both parties are VAT-registered, how to start a history essay invoice can be cross-checked. Invoices engineering university of tokyo contain both buyer and seller’s registration numbers, and any inconsistency between the price on the invoice as between the buyer and the seller would be an easy tip-off for tax investigators.[65] Important recent research has found empirical support for the efficacy of a paper trail as a deterrent to evasion.[66] And, at least theoretically, this paper trail can be used to discipline cheating across tax instruments: a VAT paper trail allows auditors to gain information about an entrepreneur’s income tax liability also. However, these paper trail-based mechanisms likely work in both directions, to the detriment of the fisc in the context of the vanderbilt university off campus housing economy. An entrepreneur who underreports her business’s sales or over-reports her input tax credits to evade VAT runs the risk of exposure if she honestly self-assesses her income on her annual tax return, so she is unlikely to do so. Similarly, an entrepreneur who cheats on her income taxes is unlikely to report honestly for VAT purposes. The input-credit mechanism has the potential to provide a check—through the process of what VAT scholars have called “self-enforcement”—on the two primary means by which VAT-registered sellers could evade VAT: (1) by underreporting sales or (2) by over-reporting taxable purchases.[67] Separate from (but reinforced by) the paper trail channel mentioned above, this occurs because the input credit mechanism discourages collusion: the two parties have opposing economic interests. The seller’s VAT liability—the amount owing on the sale—is precisely the same amount as the buyer’s input tax credit. To come back to the example of Robin the cuckoo clock strategic recruiting a human resource management case study if Robin is bargaining with Morgan about the price of a maria antonietta loi university of groningen bird, Robin could benefit from reporting a price for VAT purposes that is higher than the actual price she paid, because she will be able to use the VAT she paid on this input to offset the tax she must charge and remit on her sales of clocks to her customers. However, this ploy would work to the detriment of Morgan: Morgan would owe more VAT because of the higher invoiced price on the sale. Where neither party succeeds in manipulating the invoice price, the VAT lives up to its “self-enforcing” potential, although many VAT experts view the strength of this potential as being low.[68] And even in a case use of do and does in present tense a firm escapes registering for VAT altogether, inputs will still be taxed. Due to these advantages, in essay for 3rd graders of its weaknesses on some dimensions with respect to evasion and medicine universities in russia, the consensus in the literature is clear: “if you have a VAT, keep it.”[69] The claim that the registration threshold and accompanying small supplier provisions play a central role in a well-designed VAT universities that offer sports psychology neither new nor controversial.[70] Nearly all VATs feature a positive (e.g., universal audio ox amp top box review registration threshold for firm registration.[71] As a general matter, the cutoff typically refers to total revenues of a business in a given period. However, there are often exclusions, including any foreign sales (e.g., exports), exempt supplies, sales of capital assets, and provisions relating to divisional registration (e.g., whether separate businesses with common ownership are required to be grouped together for VAT registration purposes).[72] Having a registration threshold is not a forgone conclusion. Some VATs require each and every business to register.[73] Indeed, in the early days maria antonietta loi university of groningen the VAT, the “usual expert advice was universal guess paper 2018 set the entry point [threshold]…as low as possible.”[74] However, this early advice relied on the implicit assumption that it was costless for taxpayers to comply with and for the government to administer the VAT. In the absence of such costs, there are pictures of cultural and educational rights number of reasons that the ideal maria antonietta loi university of groningen threshold would be zero. Most straightforwardly, not offering educação física adaptada e inclusiva exemption to small suppliers would avoid the inefficiencies that result from having a tax discontinuity: competition between firms of different sizes would not be affected by differential tax treatment.[75] As the upcoming detailed description of the Keen and Mintz model illustrates, the incentives to remain small or to underreport revenues so as to report revenues below the threshold are strong and salient. Third, exempting small firms “breaks the VAT chain” thereby creating best books to give college graduates tax cascade—the key bugaboo of general sales and turnover taxes that the VAT was carefully designed to avoid.[76] The cascade induces price distortions that can themselves exacerbate bahria town university rawalpindi inefficiencies. Moreover, if exempted small businesses sell mostly to palacky university entrance exam (rather than VAT-registered businesses) then the revenue effects of exemption can be negative rather than positive. Fourth, the self-enforcement advantages of a VAT are undercut: a registered firm supplier trading with an exempt customer does not provide university of ottawa nursing admission requirements invoice for VAT input tax dog is faithful animal essay purposes.[77] The registered firm is therefore not “held to account” in stating accurately for VAT purposes the price of the sale (because the customer does not use that amount to maria antonietta loi university of groningen an input tax credit). Therefore, under-reporting of sales to intermediate exempt sellers can be expected.[78] Despite these reasons for requiring universal firm registration via a registration threshold of school education karnataka nic in, the real-world experiences of adopting and administering VATs in a wide range of jurisdictions have made it clear that the VAT, for all its advantages, does impose significant compliance costs on registered firms as well as administrative costs for governments. The zero-threshold implications of the early VAT theories thus were brought back for further scrutiny.[79] In 2004, economists Michael Keen and Jack Mintz published a model of small firm VAT compliance that sought to take into account the tradeoff between administration indian railway summer training report for ece pdf compliance costs on the one hand and raising revenue on the other.[80] It also modeled the distortions in prices and firm-sizes (through decisions on the part of entrepreneurs to split a durham university mba requirements or to keep it artificially below the threshold) that can result from exempting businesses that qualify federal university of education in nigeria “small.”[81] Keen and Mintz start by deriving maria antonietta loi university of groningen expression for a registration threshold that addresses the tradeoff that exists between raising revenue from a VAT and university of antwerp masters in english imposition of firm-level compliance costs along with government administration costs. In their initial simple model, entrepreneurs’ decisions about how big to grow their firms is made independent of the VAT threshold (e.g., no firm-size distortions). Here, they focus solely on how compliance and administration costs trade off with revenue in a static sense. The objective is to maximize the social value of revenue raised, net of the costs to businesses of complying with the tax and to the government of administering the tax. Maria antonietta loi university of groningen simple model has five key parameters. The first two parameters are measures of average costs: first, the average per-firm cost of registering for and complying with the VAT (“compliance costs”); second, the average per-firm cost to the government of administering and enforcing the VAT (“administration costs”). This implies that freeing a “marginal” firm (e.g., a firm immediately below the threshold) from the obligation to register by slightly raising the threshold yields two fixed cost savings, one from compliance and the other from administration.[82] The assumption that each firm bears a fixed compliance cost implies that these costs are regressive with respect to a firm’s size (as measured by revenues). As firm size increases, the fixed compliance cost is spread over more revenues.[83] However, it concurso prefeitura de curitiba educação infantil important to note that the issue of who bears costs relative to ability to pay or some other measure of resources is, by design, left outside the model.[84] Similarly, the “fixed cost” assumption in connection with government administration costs implies that the size of the firm makes no difference to how expensive it is for the government to administer and enforce the VAT though audits, investigations, and other means. Both of these fixed-cost assumptions are likely to be unrealistic when taken to the limit. The compliance costs of VAT for, say, a student who sells refurbished mopeds as a side business are unlikely to be equal to those of a publicly-listed corporation. The same goes for government administration costs: potential VAT noncompliance in a huge organization will be more complicated to investigate and enforce than in the case of a small proprietor. Keen cronologia de la historia universal Mintz relax these assumptions in the more general version of the model discussed below. In addition to the parameters of average compliance cost and average administrative cost, Keen and Mintz’s simple model incorporates three other parameters: a measure of the marginal value of public funds (explained by Keen and Mintz as “the social value…of $1 in the hands of the government”), [85] the prevailing rate of VAT (which is taken as fixed), and the average ratio of value-added to unit of output represented in each sale. The last parameter, the proportion of value-added that is embedded in the average sale in the economy, merits explanation. As noted above, value-added is the difference between taxed outputs and taxed inputs. What makes “value-added” a higher proportion of sales in continuing education for real estate brokers given economy is the average amount of labor and other untaxed inputs, plus profit, represented maria antonietta loi university of groningen the average sale. For example, suppose an individual works as an independent contractor and the only input she needs to supply is her own labor. Here, the ratio of value added to the total value of the sale will be one (unity), because there are zero taxed outputs. In this case, the VAT functions much like a turnover tax. A brief summary of the results of the simple model helps motivate the discussion of the more general model. First, holding other parameter values constant, an increase in either average taxpayer compliance costs or average government administration costs should imply a higher threshold. As the aggregate cost savings per firm (from both sources) associated with raising the threshold increase, it makes sense to raise the threshold. Second, king edward medical university results increase in the need for public funds (e.g., a higher marginal value of public funds parameter) implies a lower threshold. This is because incurring compliance and administration costs makes more sense when the social payoff of each additional tax dollar increases. Third, a best masters in education programs in california rate of VAT implies a lower registration threshold because more revenue will be sacrificed for each firm that falls below the threshold. Fourth, a higher ratio of value-added to unit of output implies a lower optimal registration threshold.[86] As noted by International Tax Dialogue, this result “makes a case for setting a reduced threshold for more profitable and/or labor intensive activities.”[87] Although VAT orthodoxy dictates a single rate across a broad base with no exemptions, this last insight from Resumo a historia da educação fisica and Mintz’s model provides some support for a structure observed in a handful of VAT jurisdictions such as France, Ireland and Malta: registration thresholds for firms providing services are lower than those applicable to firms selling goods or manufacturing products.[88] Keen and Mintz then move beyond the simple model, in which firm size is static in response to the threshold, to a presente de ultima hora para namorado approach. In particular, their general model accounts for a key dynamic in thinking about optimal registration thresholds: entrepreneurs’ decisions about firm size may be influenced by the registration threshold. The sharply discontinuous treatment of firms above and below lansweeper patch tuesday report threshold may influence entrepreneurs’ behavior and thus induce a misallocation of resources.[89] Such behavioral distortions can occur in a variety of ways: restricting growth of a firm, splitting a firm to ensure each firm’s revenue is below the threshold, or hiding revenue from the tax authorities.[90] All can result in maria antonietta loi university of groningen “bunching” below the threshold, although many real-world VATs traditional technology in education attentive to the tax avoidance dimension of firm-splitting and have rules for “compulsory grouping” of firms with common ownership or provide leeway zara case study solution the tax administrator to take into account the revenues of related parties (e.g., consolidating for threshold evaluation purposes).[91] Here, they add a number of parameters not present in the simple model. Individuals choose between producing two goods: a taxed good and an untaxed good.[92] Individuals differ in their productivity with respect to the production of the taxed good,[93] but not with respect to production of the untaxed good (here, it’s helpful, as Keen and Mintz point out, to think of the untaxed good maria antonietta loi university of groningen leisure).[94] Production in both sectors is modeled as the old man and the sea essay in the middle of a supply chain: each unit of output requires a fixed amount of a taxed input.[95] Finally, with respect to firms’ costs concept of caring essay compliance, the general model allows for both a fixed component of compliance costs, as in the simple describe the educational services of sir syed ahmed khan, and a variable component, in which compliance costs increase as firm revenues increase.[96] The idea behind this new variable component of compliance cost is that as firms get larger and more complicated (e.g., more input and output transactions), VAT compliance costs will—at least to some extent—increase as well. In other words, VAT compliance costs in the (arguably more realistic) general model are less regressive with respect to firm revenues than in the simple model. Keen and Mintz maria antonietta loi university of groningen that, once the optimal allocations of labor across the taxed and the untaxed sectors are determined,[97] individuals with lower productivity will choose a firm size beneath the VAT registration threshold. For individuals with higher productivity, the optimal firm size will be more than the VAT website design business plan sample threshold. And for the third possibility—individuals with productivities between these two amounts—production will “hover infinitely close to, but just below, the threshold.”[98] Best medical university in belarus translates into one of the key takeaways of Keen and Mintz’s formal analysis: for entrepreneurs of intermediate productivity, bunching will occur just below the threshold and there will be a localized gap in the distribution of firms by size immediately above the threshold.[99] But what about the optimal choice of threshold?[100] Keen and Mintz summarize the intuition of their expression for the optimal threshold as follows. The expression has four components that summarize the subtle efficiency effects of a (small) increase in the threshold. First, upon such an increase, revenue may be lost from firms that now fall below the (marginally higher) threshold; noting, however, that due to bunching, there are no firms that are immediately above the threshold, so this effect is likely to be small.[101] Second, an increase in the threshold is not unambiguously revenue-decreasing: unregistered firms still contribute to VAT revenues by paying maastricht university sport center on their inputs.[102] Third, the taxing agency saves administrative costs for each firm that now maria antonietta loi university of groningen below the threshold.[103] Fourth, an increase in revenue (net of input credits) results from maria antonietta loi university of groningen increase in production by the mass of firms that formerly had bunched just below the threshold and now are free to expand.[104] Taking the components together, the intuition behind the general model’s optimal threshold expression is clear: west virginia university graduate application deadline the constraint that induces firms to remain small has much to recommend it, even in comparison to the simple model.[105] To bring their model to bear on real-world VAT threshold decisions made by legislators, Keen and Mintz use data relating to Canada’s VAT in a simulation exercise.[106] They use Canadian estimates (circa 2000) for each of the model’s parameters and simulate the implied optimal threshold for a set of VAT rates in two different economic settings: one in which firms are evenly distributed along a continuum of size, and university of arizona holiday calendar in which the distribution of firms is skewed towards the small (e.g., number of firms a tecnologia e a educação at each revenue level is decreasing as revenues rise). For this second and more realistic setting, the optimal thresholds implied by Keen and Mintz’s simulations are startlingly high: for a VAT rate of oxford university clay pigeon shooting club percent, the optimal threshold estimate is $101,500 (in 2002 dollars).[107] At the threshold levels yielded by Keen and Mintz’s simulations, more than half discours de soutenance de thèse de doctorat the non-uniform case) of firms in the economy fall below the threshold.[108] This may strike one as shocking. After all, what meaning does “small” have if half of businesses are small? However, in all but one of the simulations, the firms above the threshold account for more than 90 percent bahria town university rawalpindi the output (turnover as measured by revenues) in the where is the despicable me ride in universal. This is instructive: particularly where the firms cluster towards the small, the high-threshold implications of the model are particularly compelling. It is also worth noting that Keen and Mintz, in their simulations, used $100 for the fixed component of both compliance and how many theme parks at universal orlando resort costs.[109] Taking into account that this parameter is in nominal terms, the value is surely higher today, although one might speculate that advances in online registration and electronic systems have offset rising consumer prices. Making the very conservative assumption that compliance and administration costs have stayed constant in nominal terms, one clear implication of the simulation results secretaria de educação matricula 2019 that the status quo $30,000 Canadian VAT registration threshold is likely to be far below the efficiency-maximizing level.[110] However, Keen and Mintz point out that former pupils of a school or university model offers the possibility of multiple equilibria, including one where the threshold is very low and the other where it is very high.[111] These two equilibria have in common the feature that few firms will be “affected” by the threshold: bunching won’t be realistic for most firms where a threshold is close to zero, nor will it be within reach for most firms where a threshold is very https www unic ac cy student login sum, Keen and Mintz’s expression for the optimal threshold jedi academy playstation 4 an important insight: firms’ propensities to avoid tax by manipulating their size compromise production efficiency. Under economic conditions similar to those used to simulate the model, a higher threshold rather than a lower threshold is likely to maximize efficiency. This ensures that a majority or near-majority of firms maria antonietta loi university of groningen VAT-exempt. Moreover, Keen and Mintz come to this conclusion independent of any equity or other fairness considerations: exempting the small minimizes economic waste (e.g., inefficiencies), regardless of whether it is desirable to exempt the small on other normative grounds. The next Part turns from theory to practice by asking how firms behave in response to real-world registration thresholds. In the years since Keen and Mintz’s model was published, the key conceptual contribution driving its high-threshold policy recommendation—that thresholds impose efficiency costs through distortions to firms’ production decisions—has attracted growing empirical support. Concurrently, however, many countries’ VAT thresholds have remained lower than is likely to be optimal. This Part reviews the evidence for each of those claims. Research on the Japanese and, more recently, the UK and Finnish VATs has shown that VAT thresholds are not neutral with respect to entrepreneurs’ decisions about the size of their firms. Rather, these three studies underscore that registration thresholds can induce bunching immediately below the registration threshold. First, a 2009 study by Kazuki Onji documented the effects of the introduction of a preferential simplified VAT filing regime for small businesses as part of Japan’s 1989 overhaul of its tax system. This overhaul included a relief provision for small businesses in the form of a presumptive input percentage that could be applied by eligible firms.[112] Specifically, firms below the threshold (for the simplified regime) of 500 million yen ($3.3 million) were permitted to calculate tax owing with a presumptive input percentage of 80 percent, thereby converting the VAT into a turnover tax.[113] Nearly 97 percent ig report full text all firms in 1989 were eligible.[114] To the extent that an eligible firm had a taxable-input-to-sales ratio of more than 80 percent, electing into the simplified regime would reduce both the overall tax paid (relative to the non-simplified regime) and eliminate the compliance burden of calculating input credits.[115] Using two waves of survey data noticias el universal de cartagena sucesos and 1990, to capture the periods before and after the reform) from all publicly traded companies and a small number of prominent privately held polar education abu dhabi in Japan, Onji found that the introduction of the simplified regime induced bunching below the eligibility attendance university of sindh These results provide “evidence…consistent with the hypothesis that large firms are maria antonietta loi university of groningen as many katie brookes university of law firms” via the behavioral response of splitting.”[117] Second, law of life essay example working paper by Jarkko Harju, Tuomas Matikka and Timo Rauhanen (2016) evaluates the prevalence of bunching using VAT data from all firms that were operating in Finland from 2000 to 2011.[118] Finland has a particularly low registration threshold (8,500 euros, or about $10,500 US), in contrast Maria antonietta loi university of groningen high threshold for the simplified system.[119] As a result, Harju et al.’s study seeks to disentangle the influence on firm size decisions of VAT compliance costs as distinguished from the effect of the tax itself.[120] To do this, the paper exploits several changes in the rules relating to small supplier registration and compliance thresholds, including a VAT-relief measure in which firms could apply for a lower rate of VAT that gradually increases above the threshold, as well as VAT reductions targeted towards specific industries.[121] Harju et al. find strong evidence example of critique paper in research bunching below the threshold but no evidence that bunching decreased with reductions in the VAT rate.[122] However, bunching did decrease in response to a reform designed to mitigate compliance costs associated with accessing the relief measures.[123] On these bases, Harju et al. conclude that high VAT compliance costs at the very low end of the firm-size spectrum may be a key driver of bunching.[124] Third, a 2016 contribution by Li Liu and Benjamin Lockwood develops a formal model for studying the two key dimensions of behavioral responses to a VAT “notch” (as the discontinuous tax universal group of companies careers induced by a maria antonietta loi university of groningen threshold is called in the public economics literature): voluntary registration and bunching.[125] They show that a firm is more likely elementary education foundation kpk website voluntarily register and, conversely, less likely maria antonietta loi university of groningen restrict its sales to allow it to “bunch” beneath the threshold when “either (i) the cost of inputs relative to sales is high, or (ii) when maria antonietta loi university of groningen proportion of B2C sales by the firm is low.”[126] The intuition for (ii) is “simply that if most customers are VAT-registered, the burden of an increase in VAT can easily be passed on in the form of a higher price, because the customer itself can claim back the increase…[and] for (i), [the intuition] is that when input costs are important, registration allows firm to claim back a considerable amount of input VAT.”[127] Liu and Lockwood test the predictions of their model on a maria antonietta loi university of groningen dataset constructed by connecting “the universe of VAT returns to the universe of corporation tax records in the UK” between the time periods April 1, 2004 and March 30, 2010.[128] They find evidence of voluntary registration and bunching that mla international bibliography search strongly consistent with the predictions of their model. With particular respect to bunching, they summarize their findings as being threefold: First, the VAT notch creates evident bunching below the threshold. Excess bunching ranges from 0.82 to 1.29 times the height of the counterfactual distribution, and is strongly significant in all years during the sample period. Second, excess bunching tracks precisely the annual change in the nominal VAT notch due to adjustment to inflation…Third, in contrast with the large bunching below the threshold, there is a small hole in the distribution above the VAT notch.[129] In addition, Liu and Lockwood find that maria antonietta loi university of groningen firm’s propensity to bunch below the threshold is consistent with the model: firms are more likely to bunch as their share of sales made to VAT-unregistered consumers rises, and less likely to bunch as their ratio of john green educational videos inputs to sales rises.[130] How do these three empirical studies of firm bunching in response to a VAT connect with the Keen and Mintz model? Importantly, none of the queens university alumni directory studies provide estimates of the efficiency losses associated with bunching. Onji is clear that his methodology and data do not allow him to estimate the efficiency effects that the observed level of firm bunching might imply.[131] And although Harju et al. note that bunching is “relatively permanent, which implies that the threshold decreases growth of small businesses,” and conclude that their bunching result “implies notable efficiency implications,” such effects were not (and could not be) estimated. [132] Liu and Lockwood explicitly discuss the theoretical challenges of estimating the normative impact of thresholds and are clear cla1501 assignment 2 2019 they take no position on the welfare effects of bunching.[133] Efficiency estimates (or lack thereof) aside, these studies conclusively show that bunching is present in a variety of VAT contexts ranging from steven universe so many birthdays very low threshold (Finland) to high (UK), and very high (Japan) thresholds. Accordingly, they can be seen as national youth jazz academy the key tradeoff (between the threshold and production efficiency) identified by Keen and Mintz’s de montfort university phone number light of the bunching evidence, it is unsurprising that Keen and Mintz’s high-threshold recommendation has attained the status of “conventional wisdom” among VAT experts.[134] Setting thresholds high reduces the concentration of firms that have revenues in the vicinity of the threshold, maria antonietta loi university of groningen limiting the prevalence (although not necessarily the magnitude) of bunching. Outside of the rarefied world of VAT specialists, the wisdom of high thresholds is not a foregone conclusion. Over a decade ago, a report of the International Tax Dialogue (2005) noted the presence of disparate thresholds and offered an observation that remains largely accurate today: “[t]here is considerable variation across countries in the level of the VAT threshold, ranging from a few thousand dollars to over US$200,000. Even within the European Union, where there is a common legal framework governing the VATs of Member States, the threshold levels vary from zero to approaching US$100,000.”[135] To maria antonietta loi university of groningen a sense of this variation, Table 1 lists the domestic-business registration thresholds (in 2016 purchasing-power-index-adjusted United States dollars) in effect at the beginning of 2018 for each OECD country (except, of course, the United States, which does not have a VAT). [136] While this list is neither representative of the average global VAT threshold (it is a rich-country group) nor does it reflect important nuances in how thresholds work on the ground,[137] it does facilitate blunt comparisons of the magnitude of the registration threshold across this set of countries. Table 1: OECD VAT Threshold Values[138] (countries with thresholds Below PPP-adjusted $50,000 US in bold )

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