A report has been released by the Ministry of Finance examining Ghana’s VAT system, developed with assistance from researchers at the Institute for Fiscal Studies in the UK.

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The report, titled "A Review of Ghana’s VAT System," investigates how VAT and related taxes are structured, managed, and their revenue impact over time.

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A statement from the Ministry explains that the report draws on VAT policy standards, global best practices, and detailed tax data to evaluate the system’s effectiveness.

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Key Findings

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Ghana’s Value Added Tax (VAT) system is designed to be progressive, as exemptions on essential foodstuffs help reduce the financial burden on lower-income households. However, in absolute cash terms, wealthier households tend to benefit more from certain exemptions. This disparity has prompted the government to reassess the VAT structure as part of its Medium-Term Revenue Strategy (MTRS) to ensure a fairer distribution of tax benefits.

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While many businesses operating below the VAT registration threshold voluntarily register for the tax, some businesses that exceed the threshold fail to comply with registration requirements. Additionally, certain registered taxpayers declare zero sales and purchases, underscoring the need for enhanced enforcement measures and strategies to encourage voluntary compliance.

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The government's decision in 2023 to restrict the VAT Flat Rate Scheme (VFRS) exclusively to small taxpayers has likely contributed to increased tax revenue. This adjustment ensures that administrative benefits are directed toward those who genuinely require them while enhancing the overall efficiency of the VAT system.

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Despite increases in tax rates, VAT revenue growth remained limited during the late 2010s, largely due to economic expansion driven by investment and exports rather than domestic consumption. This shift in economic dynamics reduced the direct impact of VAT rate hikes on overall tax collection.

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The findings from the report have already influenced tax policymaking in Ghana and are guiding reforms under the MTRS. The government is also considering further policy and administrative changes based on the report’s recommendations.

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