VAT in the Gulf Cooperation Council
Edited by Ehtisham Ahmad and Abdulrazak Al Faris
Chapter 3: Central and Subnational VATs in Federal Countries
Richard M. Bird Sixty percent of the world’s people live in 11 countries with populations exceeding 100 million. Seven of these large countries—India, the United States, Brazil, Pakistan, Nigeria, Russia, and Mexico—are formally federations.1 In addition, another 17 countries around the world have federal political systems—ranging from large countries like Germany (with a population of 82 million) to small countries like the United Arab Emirates (4 million) and even a few very small countries like St. Kitts and Nevis (which has a population of only 50 000). Table 3.1 sets out some additional salient characteristics of the 24 federal countries. Two such characteristics deserve special notice here. First, most but not all federal countries have VATs. Second, in most but not all federal countries the fiscal system appears to be relatively decentralized. Neither federalism nor decentralization is a simple concept, however, and conclusions derived from simple comparisons of data like that in Table 3.1 may be misleading.2 As a simple example, compare the two right-hand columns in Table 3.1 and observe the considerable difference between the tax share of subnational governments as conventionally measured and the share of taxes over which those governments have any significant control. Perhaps the safest conclusion one can reach from such data is that, almost regardless of the degree of federalism or decentralization prevailing in any particular country, countries appear to have a very wide range of choice with respect to designing and implementing both central and subnational value added taxes. Interestingly,...
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