Determinants of tax revenue performance in South Africa for the period 1990-2018

Abstract

Quantitative research on tax revenue performance is required to identify the variables that influence it and, as a result, develop strategies for increasing tax revenue or changing its composition. Previous scholars have mainly concentrated on developed countries, while others have avoided using newly-available variables. With data from 1990 to 2018, the study investigated the factors that have influenced South Africa's tax revenue performance. The study's three main objectives were - to examine tax revenue trends and performance in South Africa, identify the determinants of tax revenue performance in South Africa, and determine the relationship between tax revenue and explanatory variables. The goal of this study was to investigate how the South African government could increase revenue as it is so crucial for any country’s economic growth. This thesis has contributed to the topic by expanding the literature pertaining to the determinants of tax revenue performance by incorporating current relevant sample which is inclusive of other deterministic variables. The determinants of tax revenue performance in South Africa were investigated using time series data over a 28-year period, from 1990 to 2018. The study's data was analyzed using the EViews package 12. Endogeneity, serial correlation, cross-sectional dependence of the error term, group-wise heteroscedasticity, stability, and contemporaneous correlation were all checked in the time series data before the process was estimated. The research diagnostic tests revealed that the study model was valid, as there was no serial correlation, no heteroscedasticity, and the model was stable and correctly specified. According to the study, GDP per capita, foreign direct investment, and trade openness are statistically significant and positively related to tax revenue performance. Unemployment was found to be statistically significant, but it was also discovered to be negatively related to tax revenue performance, while inflation was found to be negative however, not-statistically significant. The South Africa's government is, therefore, being urged to boost GDP, allow more FDI, reduce unemployment, and be more open to trade to improve tax revenue performance.