- A VAT withholding reform in Honduras significantly reduced unrefunded tax credits and improved administrative efficiency
- The reform had no measurable impact on firms economic performance
- The World Bank’s Development Impact Group, Utah State University, PUC-Chile, and DIME studied the effects of this reform
- VAT systems globally aim to offset taxable liabilities with input tax credits, but inefficiencies arise from delayed or denied refunds
- In Honduras, unrefunded VAT credits grew significantly from 2011 to 2019
- The 2017 reform reduced the withholding rate on digital payments from 50% to 10%
- The study used tax records and a difference-in-differences methodology to assess the impact
- Results showed a significant decline in unrefunded VAT credits and a decrease in effective tax rates for firms highly exposed to digital payments
- Despite administrative improvements, there was no significant change in sales, investment, or employment among firms
- The study conducted robustness checks to ensure reliability, with consistent results across various analyses
- Findings suggest broader structural barriers may limit firm growth, beyond tax inefficiencies
Source: telegrafi.com
Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.
