Assessing the Effect of Value-Added Tax (VAT) on the Transport Sector in South Africa

Abstract

The transport sector is central to South Africa’s economic development by enabling trade, connectivity, and productivity. As a key source of fiscal revenue, value-added tax (VAT) influences sectoral performance through its effects on production costs, investment, and demand. This study empirically examines the impact of VAT on the performance of South Africa’s transport sector using annual data from 1993 to 2024 obtained from the Quantec EasyData database. The autoregressive distributed lag (ARDL) model was employed to assess both short- and long-run relationships among transport sector value added, VAT revenue, gross capital formation, and GDP expenditure. The results reveal significant negative short- and long-run effects of VAT on transport sector performance in South Africa. However, investment in physical capital exerts less pressure on the performance of the transport sector in South Africa. These findings highlight that although VAT is a vital revenue source, increases in the rate may impose short-term and long-term cost pressures on the transport sector. Policymakers should therefore design VAT reforms that balance fiscal sustainability with sectoral competitiveness to promote inclusive economic growth.