Ghana’s Ministry of Finance has published a major report on the nation’s value-added tax system in a collaborative effort with researchers from the Institute for Fiscal Studies in the UK.
The review scrutinizes the design and administration of Ghana’s VAT and related levies, taking a close look at both short- and long-term revenue trends. It draws on established VAT policy principles, international practices, and a combination of detailed tax data and qualitative insights into how the system operates on the ground.
One of the report’s key revelations is that Ghana’s VAT system is inherently progressive. In effect, richer households end up allocating a larger share of their expenditure to VAT than poorer households, largely because exemptions for basic foodstuffs shield lower-income consumers. However, when measured in cash terms, these exemptions tend to benefit wealthier households more. In response, the government is reexamining these exemptions to ensure they effectively contribute to a fairer tax structure, a move that forms a critical part of the Medium-Term Revenue Strategy.
The report also highlights a notable discrepancy in taxpayer behavior. While many businesses below the VAT registration threshold voluntarily opt to register, survey data suggest that a significant number of larger businesses, which should be registered, remain outside the system. Compounding the issue, a considerable share of registered taxpayers either fails to file tax returns or submits a ‘null’ return with zero reported activity. This gap in compliance underlines the necessity for the government to enhance both voluntary adherence and enforcement measures as part of its broader fiscal strategy.
In a bid to streamline tax collection and reduce administrative burdens, the government restricted the VAT Flat Rate Scheme—previously available to all wholesalers and retailers—to small taxpayers only in 2023. This policy shift appears to have boosted tax revenues while ensuring that the benefits of simplified compliance accrue to those best positioned to take advantage of them.
Another interesting insight from the report is that Ghana’s economic growth over the latter half of the 2010s was driven primarily by investment and exports, sectors that do not necessarily translate into higher VAT revenues. Since VAT is fundamentally a consumption tax, this composition of growth may explain why VAT collections have not surged as anticipated, even as tax rates have increased.
The findings of this extensive review are already influencing tax policymaking in Ghana. They have fed into the plans outlined in the Medium-Term Revenue Strategy, with further policy and administrative reforms expected as the government continues to fine-tune its approach.
Analysts view the report as a significant step towards modernizing Ghana’s tax system in an era marked by rapid economic change. While the inherent progressiveness of the VAT is commendable, addressing compliance gaps remains a daunting challenge. The government’s proactive stance on reviewing exemptions and tightening enforcement is seen as a promising development in boosting revenue collection and ensuring fiscal sustainability.
As policymakers digest these findings, the report stands as both a diagnostic tool and a blueprint for future reforms. It underscores the critical importance of data-driven decision-making in crafting a tax system that is both equitable and efficient—one that other nations facing similar challenges might well look to as a model for reform.
