Ghana’s Ministry of Finance has published a major new report – A review of Ghana’s value-added tax (VAT) system. This report, jointly produced with researchers from the Institute for Fiscal Studies (UK) analyses the design and administration of Ghana’s VAT and associated levies, as well as short and longer-run revenue trends. It draws on well-established VAT policy principles, practice in other countries, and both detailed tax data and qualitative intelligence on the operation of the VAT and levies in Ghana.
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.
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.
Source:3news