Open AccessThe revenue raising capabilities of a VAT system in developing countries
Author(s) -
N.T Azaria,
Zurika Robinson
Publication year - 2015
Publication title -
suid-afrikaanse tydskrif vir ekonomiese en bestuurswetenskappe/south african journal of economic and management sciences
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.277
H-Index - 17
eISSN - 2222-3436
pISSN - 1015-8812
DOI - 10.4102/sajems.v8i1.1284
Subject(s) - revenue , openness to experience , tax revenue , economics , value added tax , panel data , public economics , developing country , business , finance , econometrics , economic growth , psychology , social psychology
The paper attempts to elaborate on the revenue-raising capabilities (economic efficiency and viability) of a value-added tax (VAT) system, particularly in developing countries. The analysis concentrates on the effect of a VAT on tax revenues raised, and the main objective is to determine whether a VAT system generates greater benefits than previously utilised sales taxes, i.e. pre-existing sales taxes (PEST). Using a panel data regression analysis, our results indicate that while all countries gain revenue from the presence of VAT, it is significantly more in developed countries, although the dummy VAT variable interacted with trace openness enters positively for the lower- and upper middle-income groups. This proves the importance of trade for VAT revenues, but also that VAT combined with interaction variables is conducive to higher tax revenues