VAT and revenue growth
Over fifty years ago the value-added tax (VAT) was rarely heard of outside of France and some specialist texts. Now it is found in over 130 countries, where it commonly raises 20% or more of all tax revenue. Widely adopted in sub-Saharan Africa and elsewhere, it has been the centerpiece of tax reform in many developing countries like Ghana. By any standards, the rise of the VAT has been the most significant development in tax policy and administration of recent decades. And it is not over several Caribbean countries are in the process of adopting VATs, for example, while Libya, Syria and the United Arab Emirates are among those planning to do so in the coming years. All this is widely recognized. Yet the causes and consequences of the rise of the VAT have received virtually no attention, either theoretical or empirical. Essentially nothing is known about the two most basic questions of all: Are there any signs that the VAT has lived up, in practice, to the claims made for it by its advocates (and feared by some of its opponents)? And what exactly is it that has driven its remarkable spread around the world?
On the first of these, a key claim made by proponents of the VAT, especially for developing countries, has been that it would enhance efforts to mobilize much-needed tax revenue, not only directly but through wider improvements in tax administration and compliance. Ghana has had its challenges with the VAT system but just like others in the past, found a way of managing its dealings.
Acting Commissioner-General of the Ghana Revenue Authority (GRA), Anthony Sarpong, has defended the ambitious GH₵200 billion revenue target set for 2025, insisting it is achievable with the right strategies. Despite skepticism from some quarters, Mr. Sarpong remains confident that the target can be met through enhanced tax measures and improved compliance.
He pointed to underperforming tax areas, particularly VAT, as key opportunities for revenue growth.
He admitted that it looks insurmountable on the face of it but believes that with determination, the right strategies, and teamwork, we will be able to meet this challenge. And I say so on the grounds that, as I’ve already mentioned, there are several areas where our tax handles are not performing. “Indeed, the minister did mention the performance of VAT, which contributes about 17% of our domestic tax composition compared to our peers that are running around 50%. Therefore, if we focus on VAT, we should be able to close some of the gap.”
