Comparative Study of Value Added Tax on Financial Intermediation Service

One company's value added generally is measured in the national income accounts as sales of goods and services, less purchases from other companies. Within the financial sector, however, charges for some services are implicit in interest rate spreads and other financial margins. Most countries with VAT have chosen to exempt a broad range of financial services because of the difficulty in measuring implicit financial fees. However, that has led to VAT rules that are neither simple nor economically neutral. Taxing financial industry under VAT is the reform trend in China. This article describes the difficulty in measuring indirect charge, summarizing the method adopts by other countries to solve the problem, evaluating the limitations of these methods, putting forward the improved advice, in order to give advice for enlargement of VAT.