A
working paper released by International Monetary Fund has highlighted the varied
scope as well as limitation of VAT as an instrument for fiscal adjustment in
different regions of the world. The Working Paper concludes that revenue-neutral
shifts by Eurozone countries from reduction in employers' social contribution
towards the appropriate VAT increases could indeed improve their trade
balance.The Working Paper captioned ‘ Fiscal Devaluation and Fiscal
Consolidation: The VAT in Troubled Times' concludes that VAT in many other
countries—and not just those which currently have low rates, or no VAT at
all—still appears to have “considerable untapped potential”. The paper observes
that VAT has already played a prominent part in fiscal consolidation efforts in
Europe.
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