Analysis of VAT Rate Increase: Social Justice and Strengthening Sustainable Economic Growth

This study aims to determine the impact of an increase in the Value Added Tax (VAT) rate on the inflation rate, public consumption patterns, and welfare in Indonesia. VAT is one of the important tools in fiscal policy that contributes greatly to state revenue. The policy of increasing the VAT rate from 11% to 12% in Indonesia is designed to strengthen state revenue in order to support fiscal expenditure, but this policy also has the potential to affect the inflation rate, people's purchasing power, and general economic welfare. This study adopts a quantitative approach by utilizing secondary data in the form of inflation rates, public consumption, state revenue, and VAT rates for the period 2019 to 2023, obtained from the Central Statistics Agency (BPS). The analytical method used is linear regression, which is a hypothesis test to identify the relationship between variables. The results show that the increase in VAT rates has a positive but insignificant effect on inflation and public consumption. On the other hand, the increase in VAT rate has a positive and significant impact on state revenue, with a contribution of 97.4% to the increase in total tax revenue. This finding indicates that although people's purchasing power has not decreased drastically, the government still needs to consider the long-term impact of this policy on economic welfare.

This article analyses the redistributive function of value added tax (VAT) in Lithuania. Firstly, the differences in savings and expenditure structures of richer and poorer households are evaluated. Also, patterns of expenditures subject to different VAT rates, by groups of goods and services, in households from different income deciles are analysed. This article evaluates the effect of VAT in general and different VAT rates on income distribution and income inequality in Lithuania. The conclusion is that VAT is a regressive tax and increases income inequality. However, lower VAT rates applied to the food products or heating, which forms a bigger share of expenditure of lower income households, can perform a social redistributive function. During economic crisis, because of the changes in VAT legislation, social justice has lowered and the tax burden has increased, especially for the households at the lower end of the income distribution.

The Effect of the VAT Rate Change on Aggregate Consumption and Economic Growth

Value-Added Tax (VAT) is a major source of government revenue in many developing countries, including Indonesia. This research aims to evaluate the impact of VAT on economic growth, inflation, unemployment, and consumer behavior in Indonesia. The study utilizes secondary data from 2000 to 2023, encompassing various economic indicators. The results of the analysis indicate a significant relationship between VAT policies and these indicators, though the outcomes vary depending on specific contexts. This research concludes that VAT policies require comprehensive evaluation to minimize negative impacts and maximize benefits. The study reveals a significant negative relationship between VAT rates and GDP growth, where each unit reduction in VAT rates corresponds to an increase in economic output. Similarly, higher VAT rates demonstrate a positive but limited effect on inflation, reflecting the pass-through effect of VAT on consumer prices. Additionally, a strong positive correlation emerges between VAT rates and unemployment, highlighting its potential to suppress labor market dynamics. Lastly, household consumption is highly responsive to VAT adjustments, underscoring its role as a critical factor. The study concludes that high VAT rates can hinder economic growth, exacerbate inflation, and increase unemployment in developing countries like Indonesia. It recommends policies emphasizing the optimization of VAT rates to balance revenue collection with sustainable economic expansion and socioeconomic stability. This research provides valuable insights for policymakers and contributes to the global discourse on tax policies and economic development.

This research aimed to assess the impact of Value Added Tax (VAT) on government revenue collection. The study employed a mixed methods research design, which combines both qualitative and quantitative methodologies. The study focused on a population of 500 management-level employees at the Zambia Revenue Authority and Ministry of Finance. Seeing that the study was heavy on qualitative approach and had specific type of cadre to provide the necessary information, a sample of 30 respondents was utilized which was purposively sampled. The secondary sources on the other hand mainly involved published documentation such as reports obtained from Zambia Revenue Authority official website and journals that provided the conceptual framework and a definite meaning to the topic. Regarding the effect of VAT on Government revenue, the study revealed that an increase in VAT rate may lead to higher VAT revenue, assuming a stable level of compliance. With regard to effect of VAT on consumer behavior, it was established that when VAT rates are elevated in Zambia, the prices of a wide array of goods and services subject to VAT increase accordingly, hence consequently, higher VAT rates can drive consumers to opt for saving or investing their money rather than immediate spending. This may simultaneously lead to a reduction in consumer spending, potentially impeding economic growth. As regards to ascertaining measures to address challenges related to VAT collection, findings indicated that effectiveness of VAT is contingent upon addressing the challenges inherent in VAT collection, optimizing VAT rate policies, and adapting the system to the country's unique economic context. The study offers several recommendations, including: improving tax administration through the Zambia Revenue Authority (ZRA); combating tax fraud and evasion; simplifying VAT regulations; enhancing taxpayer education and awareness; carefully considering exemptions and thresholds; and implementing monitoring and evaluation mechanisms for VAT revenue. Further study is recommended to explore the informal economy's role in VAT collection in Zambia and its implications

This paper examined tax reforms in Nigeria with respect to value added tax (VAT). It highlighted the reasons for the replacement of sales tax with value added tax (VAT), yearly contributions of value added tax to the total revenue base of the nation and revealed that Value Added Tax (VAT) was designed to favour development at the lower tier level of government. The paper further revealed that Nigerian value added tax rate was the least in the world. Based on these revelations, the paper recommends that value added tax rate should be increased from five (5) percent to 10 percent in Nigeria. The paper also recommended that Value added tax (VAT) Act should be amended based on destination principle to impose VAT on imported services rendered outside Nigeria by a non-resident company. Keywords: Tax Reforms, Value added tax, Nigeria, sales tax

In addition to introducing fundamental changes to the structures of the European Union (EU) value added tax (VAT) rate regime, the EU VAT rate reform 2022 was aimed at aligning the EU VAT rate system with other EU policies, such as the European Green Deal. The environment-related measures are accordingly meant to incentivize eco-friendly supplies and, conversely, discourage environmentally harmful consumption patterns. Therefore, the EU lawmakers introduced options to apply zero, super reduced and/or reduced VAT rates, and a mandatory phasing-out of preferential VAT treatment respectively. Based on the empirical evidence from earlier VAT rate reforms, the author argues in favour of a differentiated assessment: While the effective VAT increases on the supply of certain environmentally harmful goods should send the intended price signal, the effectiveness and efficiency of VAT reductions as a means of promoting green consumption is highly questionable. In order to achieve the latter objective, public investments, direct financial aid, regulatory and targeted tax-related measures are identified as more appropriate measures. VAT, VAT rates, VAT decreases, VAT reductions, VAT increases, incidence, European Green Deal, environmental policy, VAT policy

The article sought to detect the impact of the value-added tax (VAT) policy on the enterprises’ asset allocation from the dual perspectives of the VAT input refund and the VAT rate. Based on the influenced mechanism of the VAT input refund and the tax burden effect (and the price effect) caused by the VAT rate, enterprises’ intertemporal optimal asset allocation models are constructed under the states of adopting the VAT input refund and maintaining the theoretical tax (non-)neutrality of VAT. When VAT rates of the general taxpayers are predicted to be reduced, we also use China’s manufacturing and economic data to simulate specific cases to verify propositions under different states. The results show that: (1) When the VAT output tax rate decreases: if returns to scale are diminishing, enterprises will increase the number of productive material assets and labor and reduce financial assets. (2) When the VAT input tax rate reduces: under the state of adopting the VAT input refund and maintaining the theoretical tax (non-)neutrality of VAT, if returns to scale are decreasing, enterprises will reduce the number of productive material assets and labor and increase financial assets. Under the state of adopting the VAT input refund and maintaining the theoretical tax neutrality of VAT, if returns to scale are increasing and the expected rate of return of financial assets is lower than the additional tax rate, or the enterprise has diminishing returns to scale and the expected rate of return of financial assets is higher than the additional tax rate, enterprises will increase the number of productive material assets and labor. (3) When VAT output and input tax rates reduce simultaneously: under the state of adopting the VAT input refund and maintaining the theoretical tax neutrality of VAT, if returns to scale are increasing and the expected return rate of financial assets is higher than the additional tax rate, the enterprise will reduce the number of productive material assets and labor and increase financial assets. Under the diminishing returns to scale in China’s national economy, the research conclusions endorse the rational necessity of the VAT policy change—VAT rate reduction to develop the entity economy and provide a reference for enterprises to make asset allocation decisions. The conclusions also provide possible changes in VAT policy for different countries according to their actual economic conditions.

This study empirically investigates the nonlinear effects of value added tax (VAT), interest rate, household disposable income, and economic growth on household consumption in South Africa, using annual data from 1994 to 2023 obtained from the South African Reserve Bank (SARB) and World Bank. The analysis employs a Nonlinear Autoregressive Distributed Lag (NARDL) model to capture potential asymmetric relationships between the explanatory variables and household consumption, allowing for different effects of positive and negative changes over the short and long run. The findings reveal that in the long run, positive changes in VAT significantly reduce household consumption, while negative changes lead to an increase, indicating an asymmetric and inverse relationship. Similarly, positive changes in interest rates significantly reduce household consumption, whereas negative changes lead to an increase in consumption, indicating an asymmetric relationship. Similarly, positive and negative changes in household disposable income are associated with corresponding increases and decreases in household consumption, respectively, and these relationships are statistically significant in the long run. Economic growth, despite exhibiting an asymmetric pattern, is also found to be insignificantly related to household consumption in the long term. In the short run, both positive and negative VAT and interest rate shocks result in a decline in household consumption, with the effects of positive and negative changes being statistically significant. A positive change in household disposable income causes a rise in household consumption in the short run, which is statistically significant. Additionally, a negative change in household disposable income causes a drop in household consumption in the short run. This study suggests that the South African government should exercise caution when adjusting VAT and interest rates as increases may suppress household consumption, particularly among low-to middle-income households. Additionally, efforts to enhance disposable income through targeted fiscal measures may support consumption and promote overall economic stability.

Abstract. The study seeks to evaluate the impact of the increase in VAT rate from 14% to 15% on the state revenue as well as on future VAT collections. VAT historical data spanning from April 2009 to March 2018 (108 observations) on a fixed rate of 14% was obtained. Assuming no change on the 14% VAT rate, was fitted to the data to predict the collection of R311.2bn and R326.7bn for 2018/19 and 2019/20 respectively. The difference between prediction (at 14% rate) and actual realisation of R324.8bn and R346.7bn for the same period (at 15%rate) was computed to get the impact. Based on the model fitted values, a percentage increase in VAT rate increased payments by 4.2%in 2018/19 and 5.8%in 2019/20.This results in a slight increase in the total state revenue of 1.1% and 1.5% in 2018/19 and 2019/20 respectively. Furthermore, the model forecast R313.9bn to be collected in 2020/21 at 15% rate, the lower collection is due to the covid-19 impact on revenue collection. The usage of these types of models will assist the South African government in their budgetary plans and future decisions by taking into account more accurate projected VAT collection. However, monitoring of the model is crucial as the prediction power deteriorate in the long run. Keywords. South African Revenue Service (SARS), Value Added tax (VAT) and Seasonal Autoregressive Integrated Moving Averages (SARIMA). JEL. H24, C15, E37.

Purpose – The Government of Namibia has traditionally used fiscal (especially tax) policy as an instrument for annual budget formulation. Marginal tax rates for profits and various income brackets have been changed back and forth in response to changes in economic conditions. However, to date, no attempt has been made to evaluate the effectiveness of these reforms in achieving the broad national economic goals, in general, and the potential effects on government revenue in the short, medium and long-run periods, in particular. The purpose of this paper is to fill this information gap by analysing the implication of the 2008 zero-rating of value added tax (VAT) on basic commodities for aggregate demand and government revenue. Design/methodology/approach – The study uses an analytical framework based on economic theory which posits that in an open economy, which trades with the rest of the world, aggregate demand for goods and services is made up of consumption demand, investment demand, government demand and net exports and that real sector equilibrium is attained when aggregate supply of goods and services is equal to aggregate demand for goods and services. Findings – Using the Namibia Household Income and Expenditure Survey results, the annual loss in government revenue attributable to this policy is, ceteris paribus, estimated to be N$310.4 million. With a marginal propensity to consume out of disposable income of 0.89, total expenditure by households on goods and services is likely to increase by N$276.3 million per annum. In the medium-to-long-run, national income will have increased by N$303.9 million per annum. Taxes which are responsive to changes in the level of national income will have increased by N$85.7 million, compensating for just over one quarter of the estimated loss in government revenue of N$310.4 million. Research limitations/implications – The study has used a partial equilibrium model as opposed to computable general equilibrium model, which provides a consistent framework that meets most of the sectoral and institutional data requirements for the simple reason that a social accounting matrix which can be used readily to connect data from different sources, such as national accounts and household surveys and would thus have been ideal model for analysing the impacts of the VAT tax reform has not been developed for Namibia. Practical implications – The paper provides a number of practical policy options available for government including, but not limited to, increasing direct taxes, VAT rate on specific (luxury) goods and services and statutory VAT rate on all other commodities not zero-rated, other taxes such as taxes; and borrowing from external sources. Social implications – It is established that zero-rating VAT on all the basic commodities in 2008 reduces the VAT paid by all Namibian households by N$310.4 million per year, which represents the annual increase in the disposable income of all households. And with a marginal propensity to consume out of disposable income of 0.89, total expenditure by households on goods and services will increase by N$276.3 million per year. Originality/value – This paper presents the first attempt at evaluating the effectiveness of tax (VAT) policy reforms in Namibia in achieving the broad national economic goals, in general, and the potential effects on government revenue in the short, medium and long-run periods, in particular.

As a response to the 1994 Mexican peso crisis, in April 1995 the Mexican government increased the Value Added Tax (VAT) rate from 10 to 15%. More recently, policy makers have debated the potential economic impact of a reduction in the VAT rate on VAT revenue. Using a vector autoregression (VAR) model, this article analyzes the dynamics between government spending, inflation, the VAT rate, and VAT revenue in Mexico. The results from the estimated impulse response functions and variance decompositions indicate that VAT rate hikes lead to increases in government tax receipts. Further, tax collections play an important role in explaining movements in the rate of inflation in the Mexican economy. Overall, the findings are consistent with the view that increases (decreases) in the VAT rate result in larger (smaller) tax revenues.

This research aims to assess the evasion of the Value added tax in Nepal. The specific objectives are: evaluating the VAT evasion on the Nepalese economy; the study follows explanatory research designs. The primary data is collected by conducting field survey using pre-structured questionnaires. Altogether 400 respondents from the four categories are interviewed: 100 from VAT payers, 100 from VAT administration, 100 from VAT experts and 100 from business community all over the country, respondents were requested to indicate their degree of conformity with specified statements using 5-point scale.
 The results of the regression model shows that the expected sign of the variable included in the model as per priory expectation. VAT rate complication and complex legal provisions are negatively related, while administrative efficiency and incentive for VAT collection are positively related with VAT collection efficiency. The computed F-statistic is also higher than table value at 95% level of significance. The coefficient of VRC is 0.08932, meaning that the change in 1% on VAT rate will decreases in VAT effectiveness by 0.089 percent point. The regression model shows that the t-statistic 1.135 and p-value 0.2569>0.05 not significant at 5%. Therefore, the null hypothesis is accepted, indicating that VAT rate has no significant impact on VAT effectiveness.

VAT Rate Increase in Nigeria: Powers of the Finance Minister and Other Statutory Landmines

The article reveals the state of the administration of value added tax (VAT) in modern terms. It is defined the main instrument of state regulation of the market economy. The article highlightes the indirect tax such as VAT like one of the progressive form of universal excise tax. The article outlines value added tax as a main source of income in the total state budget. The article clearly showes the proportion of VAT in Ukrainian revenue structure. It is exposed essence of the concept of VAT. It is defined effect of indirect taxes on economic processes in the country.The article highlights features of VAT and the basic principles accoding to which effective functioning of the tax can exist. It is analyzed some aspects of the administration of VAT, which have negative impact on economic development. The article indicates VAT rates and the sphere of their application in accordance with the Tax code of Ukraine. The article cites the main provisions of the Tax Code of Ukraine, in the aspect of a dispute and complicated situations. The article outlines main problems related to VAT, in part of the registration of the tax invoices in the single register of tax invoices and the system of VAT refunds. It is isolated features of registration of tax invoices by large and medium enterprises. As part of the VAT refund it is identified causes doubt on its application.It is listed factors affecting on the importance and wide application of the tax (VAT). In order to improve considered effective directions of tax for different economic categories to improve the functioning of the VAT mechanism In the article are defined ways of effective development of VAT.