THE EFFECTS OF THE EXEMPTION OF FINANCIAL SERVICES FROM VAT

Abstract

In the tax system, exemption from value added tax (VAT) on financial services is the standard approach to taxing financial services in the majority of countries. Whereby they pay nonrecoverable VAT on their inputs but do not charge VAT on their outputs. In this regard, this article discusses the issues of imposing the VAT on financial services. The article is devoted to the analysis of imposing the VAT on financial services from a theoretical and practical point of view Such methods as logical, monographic and comparative analysis have been widely used in the research. Based on the research results, it has been concluded that exempting financial services from the VAT will result in the mismatch between the expenses of the banking sector and the consumption of financial services, as well as a mismatch between tax cascades. Consequently, the VAT at a zero rate on loans can cause a decrease in the VAT revenues, but losses in these revenues are indemnified by an increase in bank profits. Exempting financial services from the VAT results in the violation of the essence of the VAT, makes this tax a direct tax on production and, in addition, raises the cost of financial services.