The taxation of financial services is one of the most vexing aspects of a Value Added Tax (VAT). Conceptually, VAT should apply to any fee for service but where financial services are concerned there is a difficulty in identifying the taxable amount, ie the value added by financial institutions....

In most countries applying a value added tax (VAT) system, the activities and transactions undertaken by public sector bodies are not subject to full taxation. The rationale usually invoked to justify lack of full taxation is of a mixed conceptual and political kind. On one hand, there is a view...