Indirect taxation on VAT consumption. A possible study of alternative tax rate models in Portugal

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The adoption of a single VAT rate system in the EU is a complex and controversial issue, since the current model includes several differentiated rates and is intended to reflect sectoral needs and ensure greater fairness in the taxation of consumption. This study aims to analyse which of the general consumption tax models (differentiated rates or a single rate) is more efficient in terms of revenue collection. The study uses official statistics available on the official website of the Tax and Customs Authority for the period 1996–2022. VAT revenue is measured by applying the formula of the EU’s common VAT model with the necessary adaptations to the flat rate model. Quantitative methods are applied to verify which of the tax models is more efficient in terms of collection. For this purpose, two scenarios were defined (17% and 21%). The results suggest that the estimated revenues for the proposed flat rate models are higher than the amounts actually collected through the differentiated rates. They also suggest that the 21% flat rate is preferable to the 17% rate, although the latter has the capacity to maintain current revenue levels and increase the amount collected compared to the current system. The conclusions suggest that the single VAT rate model is technically more preferable and notably more efficient than the current common consumption tax model adopted by the European Union. The study concludes that the refusal to adopt the single-rate model is not due to technical reasons but to political ones.

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    • Figure 1. VAT revenue with differentiated rates and estimated VAT revenues with a single rate of 17% and 21% (in M€)
    • Figure 2. Laffer curve for VAT revenue with differentiated rates and for estimated VAT revenues with single rates of 17% and 21% (in M€)
    • Table 1. VAT revenue with differentiated rates and estimated VAT revenues with single rates of 17% and 21%
    • Formal Analysis
      Ricardo de Moraes e Soares, Pedro Pinheiro, Paula Heliodoro
    • Investigation
      Ricardo de Moraes e Soares
    • Methodology
      Ricardo de Moraes e Soares
    • Project administration
      Ricardo de Moraes e Soares
    • Resources
      Ricardo de Moraes e Soares, Pedro Pinheiro, Paula Heliodoro
    • Software
      Ricardo de Moraes e Soares
    • Supervision
      Ricardo de Moraes e Soares
    • Visualization
      Ricardo de Moraes e Soares, Paula Heliodoro
    • Writing – original draft
      Ricardo de Moraes e Soares
    • Writing – review & editing
      Ricardo de Moraes e Soares, Pedro Pinheiro, Paula Heliodoro