Global Trends in VAT/GST and Direct Taxes

S. 90I. Introduction

In academic and political discussions the topic of exemptions in a tax system is an often-debated question. In times of increasing state budget deficits, when higher tax revenues are essential for governments, the focus on value added tax (VAT) exemptions has been increasing. This topic, however, is not a current issue of discussion in the academic world. Maurice Lauré, known as father of the VAT, considered in 1950s, that exemptions are the cancer of the VAT System. In this context the original intention of exemptions, the relief of the final consumer from the tax burden in selected areas, needs to be considered.

The topic “exemptions” is not only scrutinised in connection with indirect taxes. The area of direct taxes also contains regulations regarding exemptions. The difference between the two areas is, amongst other issues, the aim of taxation. For indirect taxes taxation is based on the consumption of goods and services. In contrast, however, is direct taxation, where the individual income of the taxpayer is used. In this context, it is also important to mention the ability-to-pay principle. This principle states that individuals with equal capacity to pay should...