A new report by the Ministry of Finance has revealed that many businesses in Ghana that meet the threshold for Value Added Tax (VAT) registration fail to comply with the requirement. Conversely, some businesses below the threshold voluntarily register for VAT.
The report, titled “A Review of Ghana’s VAT System,” was jointly produced by researchers from the Institute for Fiscal Studies (UK) and the Ministry of Finance. It examines the structure and administration of Ghana’s VAT system, highlighting compliance issues and revenue trends.
Key findings
The report identifies a pattern of non-compliance among VAT-eligible businesses. It states, “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 Medium-Term Revenue Strategy (MTRS).”
Other key findings include:
- VAT system and household impact: Ghana’s VAT system is progressive, with richer households contributing a larger share of VAT revenue due to exemptions on basic foodstuffs. However, in cash terms, wealthier households benefit the most from VAT exemptions. The government is reviewing these exemptions to ensure their effectiveness as part of the MTRS.
- VAT Flat Rate Scheme (VFRS): The 2023 restriction of the VFRS—a turnover tax scheme—to small taxpayers is believed to have increased tax revenue while reducing compliance burdens for those who need it most.
- Economic growth and VAT revenue: The report notes that Ghana’s economic growth in the late 2010s, driven by investment and exports rather than consumption, did not translate into higher VAT revenues. This trend, combined with tax rate increases, explains why VAT revenues did not rise as expected.
The Ministry of Finance stated that the report’s findings have already influenced tax policy decisions in Ghana and continue to shape discussions on VAT administration reforms under the MTRS.
