GENERAL INTRODUCTION

There are a group of services that pose particular problems under a credit-invoice VAT like the EU VAT. They are gambling, transactions involving money and other financial products that are priced to include implicit fees, and insurance (a particular kind of financial service). In all three cases, the value added by the service provider should be subject to a broad-based VAT, at least to the extent that they represent personal consumption expenditures. In all three cases, more than with other consumer goods (other than used goods) and services, a significant portion of the business inputs are obtained from consumers who are not registered for VAT purposes. As a result, those nonregistered suppliers do not issue VAT invoices and the casino, bank, investment firm, or insurance company is not entitled to claim credit for any VAT component embedded in the price of those acquired goods or services. If VAT were imposed on the consideration for these services or products, the tax would apply to more than the value added by the service provider. Absent administrable rules to tax only the value added, it is not surprising that the default rule was to exempt these services. Recently, rules have been developed to bring more of these services within the VAT base, but problems remain. The chapter starts with an easy to understand example, gambling.