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Though rebate of all VAT levied on exports TB on sector value added is positive in 0,5%, as a consequence of the “no rebate” of the “saldo técnico” (technical difference) assumed in the original Case 2 (Meat).

Case 6 dealing with Agricultural Sector production destined partially to exports with adjustment in frontier is shown in Figure Nº 4.

Figure Nº 4

Price (P)

Supply Price with VAT Supply Price without VAT

F

P

2

ED

B

A

Price Net of Tax on Exports

P0 P1

G

H

C

Demand with VAT Demand without VAT

  • 0

    Q3Q1

Q2 Q0

Quantity (Q)

The only possibility that consumers do not support the tax burden is that government does not levy imports with the VAT. In such a case, the external demand curve (price net of tax on exports) would represent the infinitive-price-elastic demand curve and the infinitive- price-elastic supply curve at the same time, which means no tax burden shifting forward or backwards, because all sales would face the price P0. But in that case the Agricultural Sector would export all production (avoiding paying the tax) and the domestic demand would import all consumption (avoiding also paying the tax). Government wouldn’t collect any VAT revenue, which means the same result of extending the “zero-tax rate” treatment to all sector’s sales.

Simulation of Case 6 assumes Agricultural Sector exporting only 30% of its production and, consequently, only that portion has “zero-rate” treatment. The rest 70% purchased domestically is levied by the tax.

Now TB is 6%, one third lower than TB of Case 3 (8,5%); due to the reduced 70% of internal purchases (omitting decimals: 8,5% x 0,70 = 6%). This is the measurement of sector tax burden in the traditional methodology, no matter what the incidence of the tax could be.

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