 system. The report, titled A Review of Ghana’s Value-Added Tax (VAT) System, examines the structure, administration, and revenue performance of VAT and associated levies. It provides critical insights into how the system can be improved to better serve Ghana’s fiscal and economic needs){kind=link}
Ministry of Finance, in collaboration with the UK’s Institute for Fiscal Studies, has published an in-depth report analyzing the country’s Value-Added Tax (VAT) system. The report, titled A Review of Ghana’s Value-Added Tax (VAT) System, examines the structure, administration, and revenue performance of VAT and associated levies. It provides critical insights into how the system can be improved to better serve Ghana’s fiscal and economic needs.
One of the report’s key highlights is the restriction of the VAT Flat Rate Scheme (VFRS) in 2023, which has proven to be a significant step in enhancing tax revenue and efficiency. The VFRS, previously available to all wholesalers and retailers, is now limited to small taxpayers, a move that has streamlined administration and reduced compliance burdens for smaller businesses. According to the report, this policy change is likely to have boosted tax revenues and ensured that the scheme benefits those who need it the most.
Other Key Findings of the Report
1. Progressivity of the VAT System
Ghana’s VAT system is progressive, with wealthier households contributing a larger share of their expenditure to VAT compared to poorer households. This is primarily due to exemptions on basic foodstuffs that provide relief to lower-income groups. However, in absolute terms, richer households benefit the most from these exemptions. To address this, the government is reviewing the effectiveness of these exemptions as part of its Medium-Term Revenue Strategy (MTRS).
2. Compliance Challenges Among Businesses
Despite some businesses voluntarily registering for VAT even when below the threshold, survey data reveal that many businesses above the registration threshold remain unregistered. Additionally, a significant number of registered businesses fail to file returns or file ‘null’ returns, declaring no sales or purchases. Strengthening voluntary compliance and enforcement remains a priority under the MTRS.
3. Economic Growth and VAT Revenues
The report highlights that Ghana’s economic growth in the late 2010s, which was driven by investments and exports, did not translate into proportional growth in VAT revenues. As VAT is a consumption tax, its performance is closely tied to domestic consumption rather than export-led growth. This trend helps explain why VAT revenue growth has lagged behind broader economic growth and tax rate increases.
Implications for Policy and Reforms
The findings of the report are already shaping tax policy in Ghana. The Ministry of Finance is using the insights to guide reforms under the MTRS, with a focus on improving VAT compliance, reassessing exemptions, and optimizing the tax system to enhance revenue mobilization.
By restricting the VAT Flat Rate Scheme to small taxpayers, the government has not only increased revenue but also targeted administrative benefits where they are most needed. This change underscores Ghana’s commitment to evidence-based policymaking and fiscal responsibility.
As the government considers additional reforms recommended in the report, the VAT system is expected to play an even greater role in funding Ghana’s development priorities.