A Review of Ghana’s Value added tax (VAT) System

A review of Ghana’s value-added tax (VAT) system is a significant new report released by the country’s Ministry of Finance. This report, which was co-authored with researchers from the Institute for Fiscal Studies (UK), examines both short- and long-term revenue trends in addition to the structure and operation of Ghana’s VAT and related levies.

It makes use of established VAT policy principles, international practice, comprehensive tax data, and qualitative intelligence on how Ghana’s VAT and levies operate.

Key findings in the report include:

That Ghana’s VAT system is progressive, with VAT making up a larger share of expenditure for richer households than poorer households, in large part reflecting exemptions for basic foodstuffs. But in cash-terms, the biggest beneficiaries of many exemptions are richer households, which is why the Government of Ghana is carefully reviewing exemptions to ensure they are as effective as possible as part of the Medium-Term Revenue Strategy (MTRS).

Many businesses below the VAT registration threshold choose to register for VAT, but survey data suggest that there are many businesses above the threshold that should register but do not. A significant share of registered taxpayers also fail to file tax returns or file a ‘null’ return with zero sales and purchases. This is one reason why improvements in both voluntary compliance and enforcement are an important part of Ghana’s MTRS.

The restriction of the VAT Flat Rate Scheme (VFRS) – a turnover tax scheme previously available to all wholesalers and retailers – to small taxpayers in 2023 is likely to have both boosted tax revenues and focused the benefits of reduced administration and compliance costs on those who can benefit most from this.

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The composition of economic growth in Ghana in the second half of the 2010s, led by investment and exports, was not conducive to growth in revenues from VAT – which is a consumption tax. This is likely to be a factor in why VAT revenues did not grow as fast as may have been expected given overall economic growth and increases in tax rates.

The analysis and findings of the report has already fed into tax policymaking in Ghana, and has guided plans set out in the MTRS. Further options for policy and administration reforms flowing from the report will also be considered by the Government.