Using Computable General Equilibrium for the Assessment of Impacts of Value-Added Tax in Sudan

Abstract:     
Economic shocks rocked Sudan's economy for the past two decades due to civil problems and Mal-admnistration. However, oil production has kept the economy going. The secession of the Southern pat of the country deprived Northern Sudan's economy from 75% of its public revenues. Value added taxation system was introduced in 2004 with the rate of 5%. However, with economic crisis it was gradually increased to 15% in 2011. With negligence, there was subsequent degeneration of the real economic sectors. Meanwhile, the deprivation of a great part of oil after secession, VAT represented considerable portion of the state revenues though it is also a burden on the public. The present study uses a computable general equilibrium (CGE) model to investigate the impacts of implementing of VAT system on the Sudan economy. A benchmark is compared with a sequence of equilibria for measuring the effect of tax policy. Increasing the value-added tax rate from 5, 10 to 15% are used to estimate the impacts scenarios. The results show that although government revenues significantly managed to increase, however, GDP and people welfare decreased. The reductions in real income occurred even before the Northern deprivation from 75% of oil revenues after the secession of the Southern part. There are prominent conclusions: (1) the launching of oil production in 1999 and subsequent increases in revenues did not help to ameliorate the real production sectors of the Sudanese economy. In fact the country's food production deteriorated over the past two decades, the balance of payments recorded negative values for the past twenty years plus and dependency on imported cereals (wheat and rice) increased 12 twelve times over; (2) people welfare standards gradually deteriorated, e.g., 1000% increases in consumer's commodities, hyper inflation that recorded rates of over 30% per month, elevated foreign currencies against the domestic value (from US$1:Sudan £12 in 1989 to US$1: Sudan £5600) and grave deteriorations in health and education services; (3) Inefficient and widely known corrupt administration uses VAT to siphon off any visible economic surplus from the public, while no governmental austerity measurements were taken. Thus oil revenues seem to have been out of reach for the Sudanese people, when they were depleted the authorities are just tying to replenish revenues through the public' deprivations. I cannot imagine but that the county is already bankrupt and going into the economic abyss.

Number of Pages in PDF File: 12

Keywords: Sudan, Taxation, VAT, Social Accounting Matrix, Computable General Equilibrium Model

JEL Classification: A00, A10, A11, A12, A19, E4, E6, E40, E41, R1, R10, R11, R12, E60, E61, E62, E63, E64, E65, E66, E69

working papers series