Ministry of Finance Releases Report on Ghana’s VAT System

The Ministry of Finance has published a comprehensive report assessing Ghana’s Value Added Tax (VAT) system, produced in collaboration with researchers from the Institute for Fiscal Studies (UK).

The report, titled A Review of Ghana’s VAT System, provides an in-depth analysis of the structure and administration of the country’s VAT and related levies, while also examining revenue trends over time.

According to a statement from the Ministry, the report utilizes VAT policy principles, international best practices, and detailed tax data to evaluate the efficiency and effectiveness of the system.

Key Findings
The report highlights that Ghana’s VAT system is progressive, with exemptions on basic food items alleviating the financial strain on lower-income households. However, wealthier households are found to benefit more in monetary terms from certain exemptions, prompting the government to review this aspect as part of the Medium-Term Revenue Strategy (MTRS).

It was also noted that while many businesses below the VAT registration threshold voluntarily register, some businesses above the threshold fail to comply. In addition, some registered businesses report zero sales and purchases, signaling a need for stronger enforcement and improved voluntary compliance mechanisms.

The introduction of restrictions on the VAT Flat Rate Scheme (VFRS) in 2023, limiting its application to small taxpayers, is believed to have increased tax revenues while ensuring that administrative resources are directed towards those who need it most.

The report further reveals that although there was economic growth in the late 2010s, largely driven by investment and exports rather than consumption, VAT revenue growth remained slow despite tax rate hikes.

The findings from this report are already influencing tax policy decisions in Ghana and are guiding reforms within the MTRS. The government is also exploring additional policy and administrative changes based on the report’s recommendations.