Potential Impact of the Increase in Vat on Poor Households in Botswana (original) (raw)
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In order to have the public funds necessary for its development, Niger is examining the possibility of broadening its Value-added tax (VAT) base to exempted goods and basic food products. This proposal has prompted violent opposition leading to the question of the social impacts of taxation. The question whether indirect taxes should be uniform or differentiated has already received a lot of attention in the literature but only the consumer's consideration used to taking into account. Due to public administration inefficiencies, VAT can also become a production tax and not only a tax on consumption. This new approach can change the usual conclusion about the optimal VAT design. The first micro-macro computable general equilibrium model of Niger's actual economy has been developed to answer these questions. The model's results show that although restoring the VAT rate would be socially costly compared to the initial situation, the distributional impact of the VAT differs according to the system implemented in the country. First of all the multiple rates VAT design can only be socially preferable compared to a single rate if VAT credits are refunded. In addition, associating the preservation of VAT exemptions in the food crop agriculture sector with a tax base expansion in the remaining sectors turns out to be the best option in Niger. Indeed it will increase public revenue while taking into account the national goal of poverty reduction. JEL: D58, E62, H22, I32
VAT Revisited. A New Look at the Value Added Tax in Developing and Transitional Countries
A Report to the Project on Fiscal Reform in Support of …, 2005
The authors are grateful to the sponsors for their support and also, most especially, to the many colleagues both in the international financial agencies and in many national governments who have, over the years, contributed so much to our knowledge of value-added taxation (VAT) in both theory and especially practice. In particular, very useful comments and supplementary materials (often unpublished) bearing on this study were received from participants at workshops held in 2004 and 2005 at USAID and the World Bank, as well as at the first Global Conference on VAT held in Rome in March 2005.
Effects of Value Add Tax on Consumption in Developing Countries
Applied Economics and Finance, 2016
The most widespread economic problem today seems to be an abrupt decline in GDP and deep recession. Consumption is one of the most important elements constituting GDP, whose growth leads to GDP growth and thus the economic growth. In this study, the effect of value added tax on consumption has been examined especially on the developing countries. In details, the effects of VAT on the consumption of 19 developing countries for duration of 1995 to 2010 were investigated. At first, VAT was incorporated the consumption function and its impact on the consumption and consequently the saving was explored because consumption and saving are interrelated. For analysing the data, the GMM panel was employed because of the structure of the model. The results revealed that VAT, with a lag, influences the consumption negatively while this finding is consistent with the research literature background as well as Duesenberry theory and the consumers' consumption habits.
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Studies have confirmed that an empirical relationship exist between the Value Added Tax and the level of aggregate consumption but the net impact of consumption taxes on growth and its sources is theoretically ambiguous, and depends on the interaction between utility parameters, the interest rate, and the tax structure.The study attempted to evaluate the extent to which VAT collection influences household cconsumptions expenditure in SouthWestern Nigeria by adopting panel method covering a period of ten (10) years. Random sampling incorporated with Slovin Formula was used to select three hundred and fifty six (356) respondent tax officers, vatable persons and three hundred and fifty three (353) households of VAT rated goods on whom questionnaires were administered. Secondary data were sourced from the approved budgets of the selected states from 2002 to 2011. Panel regression method augmented with cointegration approach, and vector auto regression was used to analyse collected data. VAT and Consumption variables were co-integrated in the long run for the states. The study revealed that VAT has the potential of positively enhancing revenue generation of the sampled states. The result of the test clearly indicates that increase in VAT necessitates an increase in the consumption expenditure.
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2011
We measure the progressivity of a Value Added Tax (VAT) using income data from the Household Income and Expenditure Survey (HIES) 2005 in Bangladesh. Overall, the VAT burden is found to be relatively high for people in lower income groups at 6.92 percent as compared to the people of high income groups at only 4.56 percent. Comparing the results with and without VAT exemptions, we find that overall the VAT in Bangladesh is regressive. The study provides some policy recommendations that could help design a better VAT system in Bangladesh.
Value Added Tax: An Instrument used in some African Countries to Meet Fiscal Objectives
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This article aims to evaluate the extent at which VAT is used as an instrument by countries to meet their fiscal deficit and meet the needs of their citizenry. Taxpayers pay taxes based on their ability to pay and with an anticipation that they will receive services in return to their contribution from government. The VAT due to its buoyancy nature contributes sizable amount of taxes which alleviate the financial burden of countries in meeting the financial obligations. Numerous kinds of literature demonstrate that whenever countries experience any budget shortfall they always look for fiscal remedies in either introduction of VAT or changing the rate of VAT. South Africa recently changed its long term rate of 14 % VAT to 15%. This article is conceptual in approach and uses the literature to argue that Value Added Tax (VAT) can be used as an effective instrument to meet fiscal objectives in some African Countries. Countries have the responsibility to ensure that their subject contributes to taxes which amongst others should in the form of VAT. As in the case of other taxes, the taxes are used to meet the fiscal obligation a country faces. The paper concludes that many countries that have introduced VAT have managed to meet their fiscal obligation due to high revenue contribution that have emanated from it, making the VAT the best tax methods to enable the country to meet their fiscal obligations.
The Effect of Consumption Taxes on Poverty and Income Inequality in Kenya
International Journal of Accounting and Taxation, 2017
Kenya faces high poverty level with the 47 per cent of the population living below the poverty line. The Gini coefficient was 0.445 in 2013, an indication of high inequality in welfare of the people (KNBS and SID, 2013). Consumption tax contributes significantly to total collections and was about 39 per cent of total tax revenues in 2015 (KNBS, 2016). There have been continuous reforms in the administration of consumption taxes. With the global agenda giving high priority to poverty eradication and enhancing equity, a study focusing on how consumption taxes influences income distribution is crucial. This paper investigates how consumption taxes can be used to reduce poverty and promote income equality in Kenya. Two OLS models are estimated; one to show the effect of consumption on income inequality and the other to show how consumption taxes influence welfare through its effect on GDP per capita. The findings confirm that consumption taxes are regressive. Consumption tax is positively related to GDP per capita. The research recommends restricted use of differentiated rates. The differentiated rate should be well targeted to the poor; lower rates are to be applied on basic goods which the poor spend more of their income on compared to the rich. Taxes collected can be utilized to provide essential facilities targeting the poor. It is necessary for the government to ensure the tax system is efficient and at the same time it redistributes wealth
In one way or the other, value added tax has been perceived to influence consumption expenditure behaviour of households as well as consumer price index. This study employed ex-post facto research design to investigate the effects of value added tax on consumption expenditure pattern and consumer price index in Nigeria. The study considered value added tax revenue, house hold consumption expenditure on durable and non-durable goods as well as consumer price index for the period 1994 - 2014. Data used for analysis were extracted from National Abstract of Statistics of the National Bureau of Statistics and the Statistical Bulletin of the Central Bank of Nigeria. The tools of analysis were multiple regression models on households’ durable and non-durable goods consumption expenditures and consumer price index with lagged valued variants. Results showed that value added tax and one-period lagged consumption expenditure on durable goods significantly affected households’ consumption expenditure on durable goods. Further, positive significant effects were established for value added tax in relation to households’ consumption expenditures on non-durable goods; and VAT, its variants and previous spending levels did not discourage households’ consumption expenditures; and value added tax did not bear significant relevance on consumer price index. Consequently, the study recommended that the current 5% value added tax rate should be maintained, since any increase would most likely affect the households negatively and escalate consumer price index to undesired levels. Key Words: Value Added Tax, Households’ Consumption Expenditures, Durable And Non-Durable Goods, Consumer Price Index, Empirical Investigation. JEL Classifications: D2, E2, F38, H21, P24, R2.