Contribution of VAT to economic growth: A dynamic CGE analysis

Aim/purpose – This study sought to assess the impact of an increased historical fixed VAT rate 14% current 15% on South African economy. Design/methodology/approach The method applied in this was based a Dynamic Computable General Equilibrium (CGE) model evaluate both and new CGE has been proven over years be suitable when evaluating assessment any shock within Enhancements were made by researcher direct indirect tax section model, i.e., disaggregated, such that for firm household revenues, dividend income stream is separated from other streams. main reason facilitate detailed analysis Corporate Income Tax (CIT) Personal (PIT), as well latest implemented Dividend (DT). Findings When 15%, immediate reaction indicates Gross Domestic Product (GDP) declined 0.0002% 2018, but 0.0028% following year (2019). trend continued until 2021, hence 1% increase will expected forecast collection approximately R3.2 billion average. Research implications/limitations findings government, which use dynamic Africa’s contribution database limited Social Accounting Matrix (SAM) 2015. Originality/value/contribution recommends assessing policy changes seems best far econ- omy concerned. assist authorities with their decision mak- ing regarding future revenue. Keywords: Revenue Service (SARS), Value Added (VAT), computable general equilibrium model. JEL Classification: H21, C68, E62.