- Ghana's VAT system reviewed
- Report highlights enforcement gaps
- Findings to guide tax reforms
The Ministry of Finance has published a new report evaluating Ghana’s Value Added Tax (VAT) system, developed in collaboration with researchers from the Institute for Fiscal Studies (UK).
Titled A Review of Ghana’s VAT System, the report provides a comprehensive analysis of the design, administration, and revenue trends related to Ghana’s VAT and associated levies. According to a statement from the Ministry of Finance, the report utilizes VAT policy principles, international best practices, and extensive tax data to evaluate the effectiveness of the system.
Key Findings
The report reveals several important insights into the structure and performance of Ghana’s VAT system. It highlights that Ghana’s VAT system is progressive, with exemptions on basic foodstuffs designed to ease the financial burden on poorer households. However, it also points out that wealthier households tend to benefit more in cash terms from some of these exemptions, prompting a review by the government under its Medium-Term Revenue Strategy (MTRS).
The report also notes that while many businesses below the VAT registration threshold voluntarily register for VAT, some businesses above the threshold fail to comply with registration requirements. Additionally, some registered taxpayers are filing zero sales and purchases, indicating the need for stronger enforcement and enhanced voluntary compliance measures.
Another significant finding is that the restriction of the VAT Flat Rate Scheme (VFRS) in 2023 to only small taxpayers has likely contributed to an increase in tax revenues and targeted administrative benefits for those most in need.
Economic growth in the late 2010s, driven by investment and exports rather than consumption, has limited the growth of VAT revenue despite increases in tax rates.
The findings outlined in the report have already influenced tax policy in Ghana and are guiding ongoing reforms under the MTRS. The government is also considering additional policy and administrative changes in response to the report’s recommendations.
