Abstract
While many methods of taxing financial services on VAT have been developed in recent decades, none are considered definitive. This article proposes a new approach to taxing financial services that has desirable properties and could be applied practically: the “mobile-ratio” method. This method uses a periodically updated ratio to allocate the financial margin of the firm to each financial transaction, obtaining near-complete taxation of the value added by financial services. This simple, neutral method can be easily administered. This approach will be of interest to public economists and policy makers seeking to increasing VAT revenue and improving VAT efficiency and neutrality.
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