外文翻译-发展中国家税制改革下增值税收入仿真模型a vat revenue simulation model for tax reform in developing countries

外文文献原稿和译文原稿发展中国家税制改革下增值税收入仿真模型AVATREVENUESIMULATIONMODELFORTAXREFORMINDEVELOPINGCOUNTRIESGLENNPJENKINSABSTRACTINTHISPAPER,WEDEVELOPAMODELTOSIMULATEPOLICIESANDREVENUESFORAVALUEADDEDTAXVATSYSTEMINCOUNTRIESTHATHAVEANINDIRECTTAXSYSTEMCONTAININGSALES,EXCISETAXES,ANDTARIFFSANAPPLICATIONOFTHEMODELISCARRIEDOUTFORNEPAL,WHICHHASRECENTLYINTRODUCEDTHEVATTOREPLACEITSSALESTAXSYSTEMANDRATIONALIZEITSEXCISEANDTARIFFSYSTEMSTHESTUDYSHOWSTHAT,INADEVELOPINGCOUNTRY,TAXPOLICIESTHATMIGHTSEEMVERYREALISTICANDPOLITICALLYNONCONTROVERSIALARELIKELYTOYIELDAVERYNARROWTAXBASEIFAGOVERNMENTOFADEVELOPINGCOUNTRYWANTSTORELYMOREONTHEVATOVERTIME,ITMUSTMOVEAGGRESSIVELYTOBROADENTHEBASEANDENHANCECOMPLIANCEKEYWORDSVATREVENUE,TAXREFORM,MODEL,NEPALINTRODUCTIONIMPORTTARIFFSANDEXCISETAXESOFTENCONSTITUTETHEMOSTIMPORTANTREVENUESOURCESINDEVELOPINGCOUNTRIESBECAUSEOFGROWINGCONCERNSINRECENTYEARSABOUTECONOMICEFFICIENCYANDTAXSIMPLICITYINACOMPETITIVEANDINTEGRATEDWORLDECONOMY,MANYCOUNTRIESARELOWERINGTRADETAXESANDREPLACINGDISTORTEDEXCISETAXESWITHCONSUMPTIONTYPEVATWITHRESPECTTOTHELATTER,ONEOFTHEMOSTIMPORTANTQUESTIONSISTHEREVENUEPOTENTIALOFALTERNATIVEDESIGNSOFTHISNEWTAXASGOVERNMENTSATTEMPTTOREPLACEORENHANCETHELEVELOFREVENUESGENERATEDBYTHEIRCURRENTTAXSYSTEMTHEPOTENTIALREVENUEWHICHCANBERAISEDFROMTHEVATDEPENDSONANUMBEROFFACTORS,SUCHASHOWBROADTHETAXBASEWILLBEANDTHEEXTENTTOWHICHBUSINESSESWILLCOMPLYWITHTHETAXTHISISSUEHASNOTBEENWIDELYDISCUSSEDINTHEPUBLICFINANCELITERATURETHEMAINPURPOSEOFTHISPAPERISTOPROVIDEANANALYTICALFRAMEWORKWHICHCANBEUSEDTOESTIMATETHEPOTENTIALTAXBASEANDASSOCIATEDREVENUESFORAVATINATYPICALDEVELOPINGCOUNTRYTHEMODELDEVELOPEDFORTHISPURPOSESHOULDBEDETAILEDENOUGHTOFACILITATETHEESTIMATIONOFTHEPOTENTIALREVENUESFORALTERNATIVETAXOPTIONSSUCHAMODELCANTHENBEUSEDTOASSISTDECISIONMAKERSINSETTINGTHEIRTAXPOLICIESTOILLUSTRATE,THEMODELISAPPLIEDTOTHEECONOMYOFNEPALWECHOSENEPALBECAUSEITISTYPICALOFMANYDEVELOPINGCOUNTRIES,HAVINGVERYLIMITEDSTATISTICALDATAANDMOVINGFROMAHIGHLYDISTORTEDINDIRECTTAXSYSTEMTOAVATALTERNATIVEAPPROACHESTOTHEESTIMATIONOFAVATBASETHEPOTENTIALTAXREVENUEOFAVATISGREATLYDEPENDENTONTHENUMBERANDLEVELOFTAXRATES,THESCOPEOFTHETAXBASE,ANDTHEDEGREEOFTAXCOMPLIANCETHEPROPOSEDVATISASSUMEDTOBEAMULTISTAGECONSUMPTIONTAXBASEDONTHEDESTINATIONPRINCIPLE,SIMILARTOAEUROPEANSTYLEVATTHETAXISAPPLIEDTOTHESALESOFGOODSANDSERVICESATALLSTAGESOFTHEPRODUCTIONANDDISTRIBUTIONCHAINATEACHSTAGE,VENDORSAREABLETOCLAIMTAXCREDITSTORECOVERTHETAXTHEYPAIDONTHEIRBUSINESSINPUTSASARESULT,THETAXSYSTEMISINEFFECTAPPLYINGTHETAXONLYTOTHEVALUEADDEDBYEACHVENDORSINCETHEONLYTAXTHATDOESNOTGETREFUNDEDISTHETAXIMPOSEDONFINALCONSUMPTION,THETAXISEQUIVALENTTOTHERETAILSALESTAXONFINALCONSUMPTIONWHILEIMPOSINGATAXATADESTINATIONPRINCIPLE,IMPORTSARETAXEDINTHESAMEWAYASDOMESTICALLYPRODUCEDGOODS,ANDEXPORTSARENOTSUBJECTTOTAXTHEREFORE,THETAXESSENTIALLYAPPLIESTOGOODSANDSERVICESCONSUMEDDOMESTICALLYACOMMONFEATUREOFTHETAXBASEINMOSTVATCOUNTRIESISTONOTTAXANUMBEROFIMPORTANTGOODSORSERVICESBECAUSEOFPOLITICALANDSOCIOECONOMICCONSIDERATIONS,TECHNICALDIFFICULTIES,ORADMINISTRATIVECOMPLEXITYTHESEGOODSANDSERVICESGENERALLYFALLINTOTWOMAJORCATEGORIES,ZERORATEDANDTAXEXEMPTFORZERORATEDCOMMODITIES,THEVATISNOTLEVIEDONTHESELLINGPRICEOFTHESEITEMSTHEVENDOR,HOWEVER,RECEIVESFULLCREDITFORTHEVATPAIDONINPUTSUSEDINPRODUCTIONIFZERORATEDSALESOCCURATANINTERMEDIATESTAGE,PURCHASERSWOULDNOTHAVEACREDITTODEDUCTAGAINSTANYSUBSEQUENTTAXDUETHISWOULD,INFACT,PROVIDEACASHFLOWCOSTANDBENEFITTOTHEVENDORANDPURCHASER,RESPECTIVELYTHENETREVENUEIMPLICATIONSFORTHEGOVERNMENTWOULDNEVERTHELESSBENILBYCOMPARISON,IFZERORATEDSALESOCCURATTHERETAILSTAGE,ITWOULDEFFECTIVELYREMOVEALLTHETAXBURDENFROMCONSUMERSANDTHEGOVERNMENTWOULDLOSEALLTHETAXREVENUEFROMTHESALESOFTHESEGOODSANDSERVICESFORCONCEPTUALANDTECHNICALDIFFICULTIES,COUNTRIESEMPLOYINGAVATGENERALLYEXEMPTTHEDOMESTICSALESOFFINANCIALINTERMEDIATIONANDINSURANCESERVICESFORADMINISTRATIVEANDCOMPLIANCESIMPLICITY,MOSTVATCOUNTRIESALSOEXEMPTSMALLBUSINESSESFROMTHETAXWHENTHESEGOODSANDSERVICESAREEXEMPTED,THEVATISNOTAPPLIEDTOTHESESALESUNLIKEZERORATEDGOODSANDSERVICES,VENDORSOFEXEMPTPRODUCTSARENOTELIGIBLETORECEIVEANYCREDITFORTHETAXESPAIDONTHEINPUTSUSEDTOPRODUCETHATGOODORSERVICETHEDENIALOFINPUTTAXCREDITSINCREASESTHEPRODUCTIONCOSTFORTHEVENDOR,ALTHOUGHTHEVALUEADDEDOFTHEVENDORESCAPESTAXLIKEZERORATEDSALES,TAXEXEMPTIONCANOCCURATEITHERANINTERMEDIATEORTHERETAILSTAGECONSIDERTHETAXEXEMPTIONATTHERETAILSTAGEWHEREGOODSARESOLDDIRECTLYTOCONSUMERSONLYTHEVALUEADDEDATTHERETAILSTAGEWILLNOTBESUBJECTTOTAXINCONTRAST,IFTAXEXEMPTSALESOPERATEATTHEINTERMEDIATESTAGESOFTHEPRODUCTIONDISTRIBUTIONCHAIN,SALESBYTHESUBSEQUENTBUSINESSESACQUIRINGTHEGOODSAREEFFECTIVELYOVERTAXEDTOTHEEXTENTTHATTHEINPUTSPRIORTHEEXEMPTSTAGEARENOTCREDITABLEASARESULT,THETAXBASEISNOTREDUCED,BUTISAUGMENTEDBYTHECASCADINGEFFECTTHEGOVERNMENTCOULDULTIMATELYCOLLECTAGREATERAMOUNTOFTAXREVENUETHANITWOULDOTHERWISEMULTIPLETAXRATESAREACOMMONFEATUREOFSOMEVATSYSTEMSINTHEDEVELOPINGCOUNTRIESITISNOTUNCOMMONTOOBSERVETHATALOWERRATEISAPPLIEDTOGOODSORSERVICESWHICHAREREGARDEDASTHENECESSITIESOFLIFEATTHESAMETIME,THEREARELUXURYGOODSWHICHMAYBESUBJECTEDTOAHIGHERRATEOFVATORALTERNATIVELY,ANONINCREDITABLEEXCISETAXTHREEALTERNATIVEAPPROACHESCANBEUSEDTOESTIMATETHETAXBASEANDASSOCIATEDREVENUES,FORWHICHINPUTOUTPUTTABLES,NATIONALACCOUNTSANDFAMILYEXPENDITURESURVEYDATAAREOFTENREQUIREDTHEFIRSTAPPROACHISSIMPLYTOCONSTRUCTANAGGREGATETAXBASEITBEGINSWITHTHEGROSSDOMESTICPRODUCTGDPOFTHEECONOMY,WHICHISTHESUMOFTHEVALUEADDEDINTHEDOMESTICPRODUCTIONOFALLGOODSANDSERVICESBECAUSEWEARECONSIDERINGADESTINATIONPRINCIPLEVAT,WENEEDTOSUBTRACTEXPORTSANDADDIMPORTSTOTHEGDPFORACONSUMPTIONTYPEVAT,THEBASEISALSOREDUCEDBYTHEGROSSCAPITALFORMATIONOFTHEPRIVATESECTORTHEBASEISFURTHERREDUCEDBYZERORATEDOREXEMPTEDCONSUMPTIONEXPENDITURESSINCEVENDORSOFEXEMPTEDGOODSANDSERVICESAREUNABLETOCLAIMANYCREDITSFORTAXESPAIDONTHEINPUTSACQUIREDTOPRODUCETHATGOODORSERVICE,THETAXBASEWILLHAVETOBEUPWARDADJUSTEDTHESECONDAPPROACHCOMPUTESTHEBASEBYSUMMINGTHEVALUEADDEDOFEACHINDUSTRIALSECTORINTHEECONOMYTHEBASEHASTOBEADJUSTEDFORTHEFACTTHATTHEVATISADESTINATIONTYPETAXAND,ASSUCH,WOULDTAXIMPORTSONENTRYINTOTHECOUNTRYANDZERORATEEXPORTSFURTHERADJUSTMENTSWOULDHAVETOBEMADEFORCHANGESININVENTORIESANDFORCOMMODITIESWHICHAREEITHERZERORATEDOREXEMPTEDMAKINGTHESEADJUSTMENTSBYSECTORISUSUALLYDIFFICULTSINCETHEVALUESOFEXPORTSANDIMPORTSARENOTREADILYAVAILABLEONANINDUSTRYBASISALTHOUGHANAGGREGATEADJUSTMENTFORTHEWHOLEECONOMYMAYBEPOSSIBLE,DETAILEDINFORMATIONBYSECTORWOULDBELOSTTHETHIRDAPPROACHISTOESTIMATETHEVALUEOFGOODSANDSERVICESPURCHASEDBYCONSUMERSWHICHWOULDAUTOMATICALLYCAPTURETHEDESTINATIONPRINCIPLEOFTHEVATSINCEITEXCLUDESEXPORTSWHILEIMPORTSAREINCLUDEDTHEVATBASEBYCOMMODITYCANTHENBECALCULATEDUSINGTHECOMMODITYSALESVALUESATTHEFINALCONSUMERLEVELTHEAPPROACHWOULDALSOFACILITATEANANALYSISOFINCIDENCEORPRICEIMPACTOFTHEVATONCONSUMERS,ISSUESWHICHAREUSUALLYIMPORTANTINTHEPOLITICALDEBATEOVERSALESTAXREFORMGENERALMETHODOLOGYFORESTIMATINGTHEVATBASETHISSECTIONEXPLORESTHEDETAILEDMETHODOLOGYOFTHETHIRDAPPROACHDESCRIBEDABOVETHISAPPROACHDEPENDSHEAVILYUPONINPUTOUTPUTTABLESINPUTOUTPUTMODELSARESTATICINNATUREAND,ASSUCH,DONOTALLOWFORBEHAVIORALRESPONSESTOPOLICYCHANGESTHUS,THEVATBASEESTIMATIONDISCUSSEDINTHISPAPERDOESNOTTAKEINTOACCOUNTBEHAVIORALRESPONSESDUETOTHEREPLACEMENTOFTHECURRENTSALESTAXSYSTEMWITHTHEVATASWASMENTIONEDEARLIER,THEVATBASECANBEESTIMATEDUSINGTHEFINALEXPENDITURESMADEBYVARIOUSECONOMICENTITIESCONSTRUCTIONOFTHEBASECAN,THEREFORE,BEGINWITHTHEDATAFORDOMESTICEXPENDITURESCONTAINEDINTHEFINALDEMANDMATRIXOFTHEIOTABLESTHEFINALDEMANDMATRIXGENERALLYCONTAINSATRANSACTIONMATRIXOFANUMBEROFCOMMODITIESBYANUMBEROFFINALDEMANDCATEGORIESTHEFINALDEMANDCATEGORIESMAYINCLUDEMANYCATEGORIESUNDEREACHOFTHEHEADINGSSUCHASPERSONALCONSUMPTION,GOVERNMENTEXPENDITURES,INVESTMENT,IMPORTS,ANDEXPORTSPERSONALCONSUMPTIONREFERSTOTHOSEINDIVIDUALS/HOUSEHOLDSORENTITIESWHOACQUIREGOODSANDSERVICESFORTHEIROWNCONSUMPTIONANDWHODONOTPRODUCESUPPLIESOFACOMMERCIALNATUREGOVERNMENTEXPENDITURESINCLUDETHECURRENTANDCAPITALSPENDINGBYALLLEVELSOFGOVERNMENTTHISWOULDBETREATEDINAFASHIONSIMILARTOPERSONALCONSUMPTIONUNDERAVATSYSTEMEXCEPTTHATTHEVATPAIDBYTHESAMELEVELOFGOVERNMENTSECTORWILLNOTNECESSARILYINCREASENETGOVERNMENTCOLLECTIONSINVESTMENT,HOWEVER,ISEXCLUDEDFROMTHEBASECALCULATIONSINCETHEVATALLOWSFORANINPUTTAXCREDITFORANYBUSINESSPURCHASESINCLUDINGCAPITALINVESTMENTEXPORTSAREALSOEXCLUDEDBECAUSEOFTHEDESTINATIONTYPEVATIMPORTSAREIGNOREDBECAUSEPURCHASESMADEBYOTHERFINALDEMANDCATEGORIESAREINCLUSIVEOFIMPORTSTHESTARTINGPOINTINCALCULATINGTHEVATBASEISWITHTHEAMOUNTOFPERSONALANDGOVERNMENTEXPENDITURESTHISAMOUNTISEQUIVALENTTOTHETOTALEXPENDITURESSHOWNINTHEIOTABLESADJUSTMENTSMUSTHOWEVER,BEMADEFORSEVERALFACTORSINORDERTOARRIVEATTHEVATBASEWHATFOLLOWSISADESCRIPTIONOFTHERELEVANTDEDUCTIONSANDADJUSTMENTSCALCULATIONOFTHECURRENTSALESTAXESSUPPOSETHATACOUNTRYHASAMANUFACTURERSALESTAXSYSTEMANDTHEGOVERNMENTPROPOSESTOREPLACEITWITHAVATTHEGROSSEXPENDITURESCONTAINEDINTHEIOTABLES,EXPRESSEDATPURCHASERSPRICE,INCLUDETHECURRENTSALESTAXESTOBEREPLACEDTHESETAXESAREIMPOSEDONTHEMANUFACTURERSSALEPRICEOFGOODSPRODUCEDINTHECOUNTRYANDONTHEDUTYPAIDVALUEOFIMPORTEDGOODSWHOLESALEANDRETAILTRADEMARGINSAREEXCLUDEDFROMTHETAXBASEUSUALLY,THESESALESTAXESAPPLYALSOTOARANGEOFINTERMEDIATEINPUTSANDCAPITALGOODSUSEDINTHEPRODUCTIONANDDISTRIBUTIONOFGOODSANDSERVICESINORDERTOREMOVETHECURRENTSALESTAXESPAIDDIRECTLYBYPERSONALANDGOVERNMENTSECTORSFROMEACHCATEGORYOFEXPENDITURES,ONEHASTOFIRSTCONSTRUCTTHECURRENTSALESTAXBASETHISISACCOMPLISHEDBYREMOVINGTHERETAILANDWHOLESALETRADEMARGINSFROMPURCHASERSEXPENDITURESONEACHGOODORSERVICE,INCLUSIVEOFSALESTAXTHEEXPECTEDCURRENTSALESTAXREVENUEFROMEACHCOMMODITY,SAY,THEITHCOMMODITYRI,CANBECALCULATEDBYMULTIPLYINGTHEDERIVEDTAXBASEBYTHEAPPLICABLETAXRATEANDBYTHETAXABLEPROPORTIONWHEREISTHESALESTAXINCLUSIVEBASEOFTHEITHCOMMODITY,ISTHETAXABLEPROPORTIONOFTHEITHCOMMODITY,ANDISTHESALESTAXRATEOFTHEITHCOMMODITYTHEMAGNITUDEOFTHETAXABLEPROPORTIONSDEPENDSUPONTHEPROPORTIONOFTHELEGALLYTAXABLESALESTOTHETOTALSALESOFTHEITEMSCONTAINEDINEACHCOMMODITYCATEGORYAFURTHERCALCULATIONMUSTBEMADEFORTHEHIDDENORINDIRECTSALESTAXESEMBEDDEDINPERSONALANDGOVERNMENTEXPENDITURESTHISREPRESENTSTHESALESTAXESWHICHARELEVIEDONBUSINESSINPUTSTHESEINPUTSAREUSEDINTURNTOPRODUCEGOODSANDSERVICESWHICHAREULTIMATELYSOLDTOFINALCONSUMERSANDGOVERNMENTSIFSALESTAXESAREASSUMEDTOBEFULLYSHIFTEDFORWARD,THETAXESWILLBETRANSFORMEDINTOAHIGHERPRICEOFTHEFINALGOODSANDSERVICESTHEIOTABLESCANBEUSEDTOMEASURETHEINDIRECTSALESTAXCONTENTINTHEGOODSANDSERVICESPURCHASEDBYFINALCONSUMERSANDGOVERNMENTSTHETOTALOFTHEABOVEEXPECTEDDIRECTANDINDIRECTSALESTAXREVENUESOVERALLCOMMODITIESANDALLENTITIESUSUALLYISNOTTHESAMEASTHEACTUALTAXCOLLECTIONSTHISISARESULTOFANUMBEROFFACTORS,SUCHASBADDEBTALLOWANCES,TAXFREEALLOWANCESFORSMALLIMPORTATION,TAXEVASION,SMALLSUPPLIERSEXEMPTIONAFTERADJUSTINGFORTHEFACTORSWHICHAREKNOWN,THEEXPECTEDTAXREVENUESAREMADEEQUALTOTHEACTUALTAXCOLLECTIONSBYAPPLYINGACALCULATEDCOMPLIANCERATETHISRATEISSIMPLYTHERATIOOFTHEACTUALREVENUETOTHEEXPECTEDREVENUEOFCOURSE,THECOMPLIANCERATEMAYVARYBYCOMMODITY,DEPENDINGUPONMARKETCONDITIONSANDOTHERFACTORSINTRODUCTIONOFTHEVALUEADDEDTAXTHEPOTENTIALREVENUEOFTHEVATEXTENDEDTOTHERETAILLEVELCANBECALCULATEDBYSUMMINGDOMESTICPERSONALANDGOVERNMENTEXPENDITURESATRETAILPRICESTHISDOESNOTINCLUDEEXPENDITURESMADEBYBUSINESSESSINCETHETAXESPAIDONBUSINESSPURCHASESARECREDITABLETHUS,THESTARTINGPOINTFORCALCULATINGTHEVATBASEISWITHTHEVALUEOFALLGOODSANDSERVICESSHOWNINTHEIOTABLESPURCHASEDBYPERSONALANDGOVERNMENTSECTORS,NETOFALLCURRENTSALESTAXESTHISISTHETOTALPOTENTIALTAXBASE,WHICHISTHENMULTIPLIEDBYTHETAXABLEPROPORTIONSFOREACHCORRESPONDINGCOMMODITYINORDERTOARRIVEATTHEVATBASEATTHISPOINT,THETAXABLEPROPORTIONSAREDETERMINEDBYTHETAXPOLICIESANDLAWSUNDERCONSIDERATIONFOREXAMPLE,THEPROPOSEDVATMAYZERORATEOREXEMPTCERTAINGOODSORSERVICESINSUCHCASES,THEFULLVALUEOFZERORATEDOREXEMPTEDGOODSANDSERVICESPURCHASEDBYINDIVIDUALSORGOVERNMENTSHASTOBEREMOVEDFROMTHEPOTENTIALBASEFOREXEMPTITEMS,HOWEVER,TAXESPAIDONBUSINESSINPUTSUSEDTOPRODUCETHEEXEMPTGOODSORSERVICESARENOTCREDITABLETHEREFORE,ANADDITIONALADJUSTMENTTOTHETAXBASEISNEEDEDTOACCOUNTFORTHEEXTENTTOWHICHTHEVENDORSCANNOTCLAIMINPUTTAXCREDITFORTAXESPAIDONBUSINESSEXPENDITURESINSUMMARY,THETOTALPOTENTIALVATBASECANBEEXPRESSEDASFOLLOWSWHEREISTHEPERCENTAGEWHOLESALEMARGINFORTHEITHCOMMODITY,ISTHEPERCENTAGERETAILMARGINFORTHEITHCOMMODITY,ISTHETOTALBUSINESSINPUTSUSEDINTHEPRODUCTIONOFTHEJTHEXEMPTSECTORUNDERTHEPROPOSEDVAT,ISTHERATIOOFTAXABLEINPUTSTOTHETOTALINPUTSUSEDINTHEPRODUCTIONOFTHEJTHEXEMPTSECTORUNDERTHEPROPOSEDVAT,ANDBI,AIANDPIAREDEFINEDASEQNSPECIALATTENTIONSHOULDBEPAIDTOLONGTERMRESIDENTIALRENTPAIDBYTENANTSTOLANDLORDSANDIMPUTEDRENTARISINGFROMTHECONSUMPTIONFLOWBYOWNEROCCUPIEDHOUSING,WHICHISNORMALLYPRESENTEDASPARTOFPERSONALEXPENDITURESINTHEIOTABLESORNATIONALACCOUNTSTHISRENTISOFTENTAXEXEMPTANDSHOULDBEEXCLUDEDFROMTHETAXBASEINORDERTOAVOIDDOUBLETAXATION,SINCEASANALTERNATIVE,THEVATISSOMETIMESLEVIEDONTHEPURCHASEPRICEOFNEWLYCONSTRUCTEDDWELLINGSAPORTIONOFGROSSCASHRENTANDIMPUTEDRENT,HOWEVER,WOULDSTILLBESUBJECTTOVATASARESULTOFTAXABLEEXPENDITURESMADEFORREPAIRS,PROPERTYINSURANCE,ANDCERTAINUTILITIESITSHOULDBENOTEDTHATTHEVALUEOFLANDISEXCLUDEDINBOTHTHEIOTABLESANDNATIONALACCOUNTSBECAUSEITDOESNOTREPRESENTVALUEADDEDFOROURPURPOSE,THEVALUEOFLANDISUSUALLYINCLUDEDASPARTOFTHEPURCHASEPRICEOFANEWHOMETHUS,WHENNEWHOUSESARETAXABLEUNDERTHEVAT,THEPERSONALEXPENDITURESMUSTBEADJUSTEDUPWARDTOACCOUNTFORTHEFULLPRICEOFNEWHOMESSOMEADJUSTMENTSMUSTBEALSOMADETOGROSSEXPENDITURESINTHEGOVERNMENTSECTORFORTHEMOSTPART,THEPRODUCTIONFROMTHISSECTORISUSUALLYEXEMPTUNDERAVATANDTHEASSOCIATEDVALUEADDEDWOULDNOTATTRACTTHETAXONTHEOTHERHAND,THEINTERMEDIATEINPUTSUSEDTOPRODUCEGOVERNMENTGOODSANDSERVICESAREUSUALLYTAXABLEAND,ASACONSEQUENCE,REMAININTHETAXBASEOFTHEGOVERNMENTSECTORFINALLY,TOARRIVEATABENCHMARKESTIMATEOFREVENUEYIELD,THETAXBASEFOREACHCOMMODITYITEMISTHENMULTIPLIEDBYTHECOMPLIANCERATIOUNDERTHECURRENTSALESTAXSYSTEMTHISADJUSTMENTIMPLIESTHATTHECOMPLIANCERATEFOREACHCOMMODITYUNDERTHEPROPOSEDVATWOULDNOTBEDIFFERENTFROMTHATBEINGSUBJECTTOTHECURRENTSYSTEMTHECOMPLIANCERATEMAYBEADJUSTEDUPWARDHOWEVERIFONEBELIEVESTHATTHEVATSYSTEMWOULDENHANCETAXPAYERCOMPLIANCE,ORIFTHEGOVERNMENTCANINCREASETHELEVELOFADMINISTRATIVEENFORCEMENTONTHECONTRARY,THECOMPLIANCERATEMAYBEADJUSTEDDOWNWARDIFTAXEVASIONISEXPECTEDTOSPREADWITHTHEINTRODUCTIONOFAVATTHETOTALEXPECTEDVATREVENUESFORTHEECONOMYWILLTHENBEEQUALTOTHESUMMATIONOFALLADJUSTEDTAXBASESACROSSGOODSANDSERVICESPURCHASEDBYBOTHTHEPERSONALANDGOVERNMENTSECTORS,TIMESTHEPROPOSEDVATRATESACCRUALVERSUSACTUALREVENUECOLLECTIONSTHEMODELDEVELOPEDSOFARPROVIDESANANNUALESTIMATEOFTHEVATPAIDBYFINALCONSUMERSANDGOVERNMENTSTHESEESTIMATESAREPRESENTEDONANACCRUALBASISRATHERTHANTHEACTUALREVENUESRECEIVEDBYTHEGOVERNMENTDUETOTHEPAYMENTLAGSBUILTINTOTHEVATSYSTEMFOREXAMPLE,THEVATMAYBEDESIGNEDTOPROVIDEAGREATDEALOFFLEXIBILITYINFILINGREQUIREMENTS,DEPENDINGONTHESIZEOFTHEBUSINESSFORLARGEFIRMS,FILINGMAYBEREQUIREDONAMONTHLYBASISFORSMALLERFIRMS,FILINGMAYBEALLOWEDONAQUARTERLYORANNUALRETURNCERTAINTYPESOFBUSINESSESSUCHASEXPORTERSARELIKELYTOCHOOSETOFILETHEIRRETURNSONAMONTHLYBASISINORDERTOCLAIMINPUTTAXCREDITSEARLIERFURTHERMORE,ALLTAXPAYERSARELIKELYTOHAVEUNTILTHEENDOFTHEMONTHFOLLOWINGTHEREPORTINGPERIODTOFILETHEIRRETURNSFROMAGOVERNMENTSPERSPECTIVE,ITISNECESSARYTOTRANSFORMTHEVATESTIMATESFROMANACCRUALTOACOLLECTIONBASISONECANFIRSTSEGREGATETHEABOVEANNUALESTIMATEOFTHEVATBASEINTOTHEINDIVIDUALVALUEADDEDCOMPONENTSFORPRIMARYPRODUCERS,MANUFACTURERS,WHOLESALERS,RETAILERS,ANDOTHERSERVICESECTORSEACHOFTHESECOMPONENTSISTHENCONVERTEDTOAMONTHLYBASISUSINGSALESANDOTHERRELEVANTDATAFOREXAMPLE,THERETAILCOMPONENTISDISTRIBUTEDTOEACHMONTHBASEDONMONTHLYRETAILSALESDATATHISSHOULDREFLECTTHESEASONALPATTERNSINPRODUCTIONANDDISTRIBUTIONCHANNELSTHEAPPROPRIATECOLLECTIONLAGSSHOULDALSOBEINCORPORATEDFOREACHTYPEOFTAXFILERTHERESULTINGREVENUESCANTHENBETRANSFORMEDTOACOLLECTIONBASISTHISCONSIDERATIONWILLBEPARTICULARLYIMPORTANTWHENTHEVATISFIRSTINTRODUCEDINTOACOUNTRYANAPPLICATIONTOACASEFORNEPALTHECURRENTSALESTAXCOLLECTEDINNEPALINFISCALYEAR199495WASABOUT6,032MILLIONRUPEESWHICHACCOUNTSFORAPPROXIMATELYONETHIRDOFTHETOTALTAXREVENUESITISTHESINGLEMOSTIMPORTANTREVENUESOURCELIKEMANYOTHERCOUNTRIES,THESALESTAXISIMPOSEDONTHEMANUFACTURERSSALEPRICEOFGOODSPRODUCEDFORDOMESTICCONSUMPTION,ANDONTHEDUTYPAIDVALUEOFIMPORTEDGOODSASARESULT,THETAXAPPLIESTOARANGEOFINTERMEDIATEINPUTSANDCAPITALGOODSUSEDINTHEPRODUCTIONANDDISTRIBUTIONCHANNELSTHISTAXHASBECOMENOTONLYADMINISTRATIVELYCOMPLEX,BUTALSOECONOMICALLYINEFFICIENTTHEMINISTEROFSTATEFORFINANCEINNEPALANNOUNCEDINTHEJULY1993BUDGETTHATTHEGOVERNMENTWOULDFOCUSONGRADUALLYTRANSFORMINGTHESALESTAXINTOAVALUEADDEDTAXSINCETHEN,SUBSEQUENTGOVERNMENTSHAVEHADTOMAKEASERIESOFTAXPOLICIESANDSETTAXRATESINORDERTOENSURETHENEWSALESTAXSYSTEMISFAIR,SIMPLE,EFFICIENTANDPRODUCESREVENUEINASTABLEFASHIONINTHEJULY1993BUDGET,ITWASANNOUNCEDTHATTHENUMBEROFSALESTAXRATESWOULDBEREDUCEDFROMFIVETOTWORATES,10AND20THESAMETAXRATESAREAPPLIEDEQUALLYTODOMESTICALLYPRODUCEDGOODSANDTOIMPORTSINORDERTOSTREAMLINETHESALESTAXOPERATIONINADDITION,THEREHASBEENASUBSTANTIALAMOUNTOFGOVERNMENTREVENUESCOLLECTEDFROMANUMBEROFSELECTIVEEXCISESONCIGARETTES,LIQUOR,BEER,SOFTDRINKS,EDIBLEOILS,CEMENTANDSOONTHEMAINOBJECTIVEOFTHISSECTIONISTOAPPLYTHEABOVEMODELTOTHEESTIMATIONOFPOTENTIALREVENUESFORAVATTOBEIMPLEMENTEDINNEPALPREPARATIONOFTHEBASICDATATHEDATAAREQUITELIMITEDINNEPALINORDERTOPRESENTTHEMOSTUPTODATEECONOMICSTRUCTUREFORTHECOUNTRY,WEDEVELOPEDACOMPLETESETOFDATAFORTHEFY199495SINCETHISISTHELATESTYEARTHATDATAAREAVAILABLEONTHEEXPENDITURESIDEFROMNATIONALACCOUNTSINNEPALTHEDATAAREARRANGEDINTOTHREEMAJORCATEGORIESPERSONAL,BUSINESS,ANDGOVERNMENTFIRST,THEDETAILEDPERSONALEXPENDITUREDATAAREONLYAVAILABLEFROMAHOUSEHOLDBUDGETSURVEYFOR1985THESEDATAALSOARESEPARATEDINTOURBANANDRURALFOREACHCLASSOFCOMMODITYEXPENDITUREDUETOTHEIRDIFFERENTEXPENDITUREPATTERNSANDTHERECENTMASSIVEMIGRATIONFROMRURALTOURBANAREAS,THECURRENTDETAILEDHOUSEHOLDEXPENDITURESBYCOMMODITIESFORTHECOUNTRYASAWHOLEARECONSTRUCTEDBYINCREASINGTHEPROPORTIONOFTHETOTALNATIONALHOUSEHOLDEXPENDITURESMADEINURBANAREASFROM7IN1985TO12IN1994USINGTHEFY199495AGGREGATEPRIVATECONSUMPTIONSHOWNINNATIONALACCOUNTSASACONTROLTOTAL,THEDETAILEDPERSONALEXPENDITURESBYCOMMODITIESAREESTIMATEDSECOND,THEINFORMATIONCONCERNINGBUSINESSEXPENDITURESONCAPITALINVESTMEN