A historical institutionalist analysis of tax policy change : South African case studies of VAT and sugar tax

Abstract

Governments require financial resources to advance their economic and social agendas, yet the public often resists taxation. This inherent conflict in tax revenue collection often leads to tax policy outcomes driven by political expediency rather than logical design. To gain a better understanding of tax policy changes, this study delves into two tax events implemented on 1 April 2018 in South Africa: the introduction of a tax on sugar-sweetened beverages (SSB) and the increase in the standard value-added tax (VAT) rate from 14% to 15%. The study identifies the primary influences underlying these events and highlights insights from a historical institutionalist analysis of the evolution of these two tax policies. While the study is not comparative, it employs historical institutionalism to inform the analysis of the two taxes to examine the politics of taxation to obtain a greater understanding of the complex political environment that is tax policy development in South Africa. A case study approach is followed, blending theoretically-informed document analysis from the consultation and policy development processes and data collected from 30 semi-structured interviews with a diverse range of actors who were involved in these processes. The pressing need to combat the escalating obesity crisis and the related surge in non-communicable diseases was identified as the main influence on the introduction of the sugar tax in SA. Meanwhile, regarding the VAT rate increase, the main drivers of the policy change were identified as corruption, wasteful government spending, and the demand for more government revenue. The study underscores the significance of contextually-relevant evidence and extensive engagement with multiple stakeholders, as vividly demonstrated in the development of the SSB tax. In terms of a theoretical contribution, the study accentuates the relevance of informal institutions and the prevalence of corruption, which resonate particularly in the South African and broader developing country context. It also highlights distinct forms of power and their utilisation to achieve institutional objectives. This research enriches the literature on and comprehension of tax policy development in three distinct ways. Firstly, it furnishes insights into the antecedents leading to tax policy change in two distinct tax events in South Africa. Secondly, at a practical level, the research bears implications for policymakers contemplating tax policy changes in developing countries. And lastly, the study shows how historical institutionalism can be harnessed to attain a deeper grasp of tax policy change in the context of research in African and other developing countries.