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Improvements to the GST Treatment of Financial Services - the proposed New Zealand approach

Publication date: 01 Dec 02 | Source: VAT MONITOR

Issue: Vol 13, no 6

Pages: pp. 481 - 486

Exemptions are used in a VAT (GST) system as a substitute for taxing supplies of goods and services when directly taxing those goods and service is impractical or undesirable. Exemption of financial services means that no VAT is charged on the supply of financial services and that the financial institution supplying the services is unable to recover any imput tax on purchases used in making the supply. Financial institutions must either pass on the irrecoverable input VAT to their customers or absorb it into their profit margins, which, either way, constitutes a violation of the VAT system where those customers are engaged in taxable activities. In this article the author describes the New Zealand government's analysis of and response to the distortions created by the exemption of financial services.

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Author profiles

Marie Pallot
Marie is a Policy Manager with the Policy Advice Division of New Zealand’s Inland Revenue. Her role is to provide recommendations for legislative change to the New Zealand Government predominantly in the areas of GST and tax administration. Marie is also a bureau member of the OECD’s working party 9 on consumption taxes which is in the process of developing international guidelines for the GST/VAT treament of cross-border supplies of services to businesses. - Current at 02 June 2009
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