Estimating the VAT gap in Ghana

Preface

This report was prepared by the Institute for Fiscal Studies, UK (IFS) through the Centre for Tax Analysis in Developing Countries (TaxDev) in collaboration with the Revenue Policy Division at the Ministry of Finance, Ghana and the Ghana Revenue Authority.

The authors would like to thank the UK Government Public Finance Centre of Expertise – funded by UK International Development – for financial support, through the grant to TaxDev. TaxDev is a collaboration between IFS and ODI Global, and aims to promote more effective tax policymaking in low- and middle-income countries through research, applied analysis, and partnerships with policymakers. Co-funding from the ESRC-funded Centre for the Microeconomic Analysis of Public Policy (ES/Z504634/1) is also gratefully acknowledged. 

The authors would also like to thank Francis Amankwah-Poku, Mawutor Anku, Ernest Berko Asiedu, Benjamin Chackson (all Ministry of Finance, Ghana), Sylvia Ankamah, Thomas Agorsor (both Ghana Revenue Authority), and the participants at the VAT gap validation workshop in Accra, Ghana for their comments and help with securing additional data.

The views expressed in this report are those of the authors and do not necessarily reflect the views of the funders or of the other individuals or institutions mentioned herein, including IFS, which has no corporate views, the Ministry of Finance, Ghana, and the Ghana Revenue Authority.

Executive summary

The value added tax (VAT) is the cornerstone of Ghana’s revenue system, plays a central role in the country’s Medium-Term Revenue Strategy (MTRS) and has recently (January 2026) seen significant reforms to bring its design more into line with standard international practice. This report estimates the size and composition of Ghana’s VAT gap – the difference between actual VAT revenue and the revenue that could be raised under full compliance – over the period 2013 to 2024, prior to the recent reforms, using the International Monetary Fund’s RA-GAP methodology and detailed national accounts data.

We find that Ghana’s VAT gap over this period was large relative to comparator countries in Africa. In 2024, the compliance gap is estimated at nearly 70% of potential VAT revenue under the policy framework then in place, equivalent to GH₵69 billion or 5.9% of GDP. The average compliance gap in African countries is around 40% of potential revenue or 3% of GDP.

Non-compliance is higher in the domestic economy than at the border. The domestic compliance gap reached 77% of potential revenue in 2024 and accounts for around two-thirds of the total compliance gap. The wholesale & retail trade, construction and manufacturing sectors together are responsible for about 80% of domestic revenue losses. While domestic compliance has improved modestly since 2013, the improvements were most visible until 2022, and the gap has widened again since then. By contrast, compliance at Customs is relatively higher, with a gap of 57% of potential revenue in 2024, but it has deteriorated significantly over time.

Policy choices also play a major role in limiting VAT revenues. Existing exemptions and reliefs reduce potential VAT revenue by about GH₵48 billion or 4.1% of GDP, assuming full compliance. Exemptions of agricultural products alone account for almost two-thirds of the domestic expenditure gap, making them by far the largest single source of forgone VAT revenue.

Taken together, the results suggest that meaningful increases in VAT revenue will require a dual strategy. Improving compliance, especially in a few large domestic sectors, offers the biggest immediate revenue gains. At the same time, reviewing and rationalising VAT exemptions, particularly in agriculture and parts of the service sector, could substantially broaden the tax base while remaining consistent with Ghana’s broader revenue and equity objectives. The VAT gap analysis presented in this report provides a framework for targeting both enforcement and policy reform more effectively.