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An Analysis of South Africa's Value Added Tax

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  • Go, Delfin S.
  • Kearney, Marna
  • Robinson, Sherman
  • Thierfelder, Karen

Abstract

A value added tax (VAT) was introduced in South Africa in 1991 to replace the general sales tax (GST). Initially, there were some questions on the ability of VAT to replace GST as a revenue source for government. However, the overall performance of VAT, as revenue generator seems satisfactory; in 2002 the government stated VAT is a dependable and broad-based revenue source. The VAT in South Africa is administered with a rebate for intermediate input use. Retail sellers pay the statutory rate times the value of output minus the VAT payments paid by the intermediate inputs used in production. In this paper, we evaluate the effect South Africa’s VAT has on welfare. We use a computable general equilibrium (CGE) model with detailed specification of South Africa’s tax system. First we describe the effects of removing the VAT and replacing the revenue by a proportional increase in direct taxes. Then we consider the effect alternative statutory rates have on the regressiveness of the VAT.

Suggested Citation

  • Go, Delfin S. & Kearney, Marna & Robinson, Sherman & Thierfelder, Karen, 2004. "An Analysis of South Africa's Value Added Tax," Conference papers 331274, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:331274
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    1. Cesar Revoredo-Giha & Luiza Toma & Faical Akaichi, 2020. "An Analysis of the Tax Incidence of VAT to Milk in Malawi," Sustainability, MDPI, vol. 12(19), pages 1-17, September.
    2. Sahlén, Linda, 2008. "The Impacts of Food- and Oil Price Shocks on the Namibian Economy: the Role of Water Scarcity," Umeå Economic Studies 758, Umeå University, Department of Economics.
    3. Delfin S. Go & John Page, 2008. "Africa at a Turning Point? : Growth, Aid, and External Shocks," World Bank Publications - Books, The World Bank Group, number 6421, December.
    4. Sara Wong & Ricardo Arguello & Ketty Rivera, 2007. "Poverty impacts of increased openness and fiscal policies in a dollarized economy: a CGE-micro approach for Ecuador," Documentos de Trabajo 4367, Universidad del Rosario.
    5. Delfin Go & Marna Kearney & Vijdan Korman & Sherman Robinson & Karen Thierfelder, 2010. "Wage Subsidy and Labour Market Flexibility in South Africa," Journal of Development Studies, Taylor & Francis Journals, vol. 46(9), pages 1481-1502.
    6. Robinson, Sherman & Thierfelder, Karen, 2017. "Taxes, Prices, and the Exchange Rate in the Destination-Based Cash-Flow Tax (DBCFT) System," Conference papers 332910, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    7. McDonald, Scott & Punt, Cecilia, 2005. "General equilibrium modelling in South Africa: What the future holds," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 44(1), pages 1-39, March.
    8. Sahlén, Linda, 2009. "Essays on Environmental and Development Economics - Public Policy, Resource Prices and Global Warming," Umeå Economic Studies 762, Umeå University, Department of Economics.
    9. Devarajan, Shantayanan & Go, Delfin S. & Robinson, Sherman & Thierfelder, Karen, 2009. "Tax policy to reduce carbon emissions in south Africa," Policy Research Working Paper Series 4933, The World Bank.

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