Reimagining Value-Added Tax Reform Through Digital Rebates and Advanced Simulation for Inclusive Fiscal Policy

This paper examines the regressive nature of the value-added tax and proposes an integrated framework combining a uniform value-added tax rate with progressive, digitally administered rebates. The model was performed using household- and firm-level microsimulations with Monte Carlo methods. It demonstrates that equity can be reached without revenue neutrality being undermined. Simulation results for a calibrated 2024–2025 economy show the proposed rebate structure reduces the effective tax burden on the lowest income quintile from 13.5% to 5.4% of income, delivering a net cash benefit of USD 786.88 and a welfare gain of 6.10%. The policy is projected to generate a robust average VAT revenue of USD 17.44 million, with a 97.8% probability of a positive fiscal impact, while reducing the poverty rate by 2.6% and lowering inequality (Gini coefficient of utility to 0.199). The outcomes present a welfare gain for the poor, a small firm-level effect, and a decrease in poverty and inequality. The results suggest a feasible policy route towards a more equitable tax system, thus promoting indirectly to the United Nations Sustainable Development Goals (SDGs), specifically SDG 8 (decent work and economic growth) and SDG 10 (reduced inequalities).