Digital VAT and Development: D-VAT and D-Velopment

Richard Thompson Ainsworth

Boston University School
of Law Working Paper 06-21


This article suggests that the time is right for developing countries to consider adopting a comprehensive, fully digital VAT, (complete with certified software and trusted third party intermediaries who could assume all of the taxpayer’s VAT responsibilities) within the limited group of enterprises encompassed by the large taxpayer group.


Since the e-commerce revolution began in the 1990’s, tax policy discussions in developed economies have enlisted “e-solutions” to streamline consumption tax administration, as well as to resolve technical problems. 


Inspiration came from the marketplace.  Policy-makers observed widespread, business-initiated e-solutions to consumption tax compliance problems in a wide spectrum of jurisdiction.  There are two aspects to these developments: horizontal – the availability of a single e-solution to the same consumption tax issue across many jurisdictions; and vertical – the availability of a comprehensive e-solution to multiple consumption tax issues within a single jurisdiction. 


This paper addresses the question of how developing economies should participate in this discussion.  Should policymakers simply support incremental advances?  Should the plan be to roll out vertical e-solutions at a pace roughly parallel to local technological development, or should comprehensive (horizontal and vertical) e-solutions be proposed for a dedicated segment of the economy?  Which way would better stimulate development, encourage foreign direct investment, and more broadly integrate local businesses within world markets? 


The second approach (vertical and horizontal) is the way this paper answers these questions.  The answer is based on three factors: (a) revenue concentration – the great bulk of VAT revenue is derived from a small number of large, frequently foreign business enterprises; (b) existing software – most, if not all, major multinational firms currently determine VAT obligations through global software applications integrated into their ERP system; and (c) corporate governance reform – the C.E.O. and C.F.O. of global companies are under increased regulatory pressures, often with direct personal liability, to document controls over cash flow in a manner that effectively mandates comprehensive automated consumption tax systems.  These factors constitute context, opportunity and leverage for developing countries. 


The D-VAT proposed here is a technologically intensive, fully automated VAT that is made available or mandated for the large taxpayers.  All invoices, statements, reports, returns, and notices are electronic.  All payments, refunds and most audit functions will be digital.   The Digital VAT requires uniform digital identification of each good or service transaction in the economy.  Nationally defined, internationally harmonized product and service codes will be used.  The D-VAT will certify service providers (CSPs) whose automated invoicing, tax calculation, collection and return preparation and funds payment systems will conform to the highest international

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Richard Thompson Ainsworth Contact Information

LL.M. Tax Program
Boston University School
of Law
765 Commonwealth Ave
Boston, MA 02215

Phone: (781) 773-1052

The final form of this article can be found at:

Tax Notes International, p. 625 (August 15, 2005)

This draft can be also found at the link below:

Social Science Research Network



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