The Value-Added Taxes (VAT) were first introduced in the early 1950s to help countries increase tax revenue. Since then, almost 200 countries worldwide have used this method to strengthen compliance and generate a more reliable revenue stream. However, the benefits for developed and undeveloped nations differ with VAT, and recent studies show a reassessment is critical. In undeveloped nations with rich resources, it has not been beneficial, as governments have had significant fiscal shortfalls and lost tariff revenues. This framework has caused a "resource curse" in that theory; the cost of extraction has decreased, which has then increased the reliance on unprocessed raw material exports; this is not a money-rich industry.
This has led researchers to find that even if a tax system seems to work for one nation, the concept does not work worldwide. The VAT needs to be altered for developing countries that face budget constraints. In 2024, China stopped VAT reimbursements for 2 major raw goods, and while shipping costs rose, it created incentives to process domestically and keep them within China.
https://www.project-syndicate.org/commentary/how-vat-has-failed-developing-economies-by-rabah-arezki-et-al-2025-10
2 comments:
That is quite interesting and a great analysis of VAT taxes. I do find it interesting how different tax structures seem to be affecting both the people and governmental revenue.
It's fascinating how something as standardized as VAT can have such uneven effects across countries. The point about resource-dependent economies suffering from fiscal shortfalls really shows how one-size-fits-all tax models can backfire. China's move to incentivize domestic processing seems like a smart adjustment; maybe developing nations could adopt similar strategies to capture more value locally instead of relying on raw exports.
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