A review of Ghana's value-added tax (VAT) system

Published on 11 February 2025

The report undertakes a review of the VAT system in Ghana with a view to making recommendations for future policy action.

In recent decades, the value-added tax (VAT) has become widespread around the world, and it is a crucial source of tax revenue – especially in low- and middle-income countries (LMICs), where personal income tax revenues are typically low. The popularity of VAT rests on a number of key design features which are intended to engender production and revenue efficiency.

Ghana’s VAT system is now close to two and a half decades old; over this period several significant modifications in the design of the system have occurred. This report undertakes a comprehensive review of the system with a view to making recommendations for future policy action. Below are the key findings from this exercise. The report’s authors have shared potential recommendations and policy options with the Government of Ghana.

Key Findings:

That Ghana’s VAT system is progressive, with VAT making up a larger share of expenditure for richer households than poorer households, in large part reflecting exemptions for basic foodstuffs. But in cash-terms, the biggest beneficiaries of many exemptions are richer households, which is why the Government of Ghana is carefully reviewing exemptions to ensure they are as effective as possible as part of the Medium-Term Revenue Strategy (MTRS).
Many businesses below the VAT registration threshold choose to register for VAT, but survey data suggest that there are many businesses above the threshold that should register but do not. 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 MTRS.
The restriction of the VAT Flat Rate Scheme (VFRS) – a turnover tax scheme previously available to all wholesalers and retailers – to small taxpayers in 2023 is likely to have both boosted tax revenues and focused the benefits of reduced administration and compliance costs on those who can benefit most from this.
The composition of economic growth in Ghana in the second half of the 2010s, led by investment and exports, was not conducive to growth in revenues from VAT – which is a consumption tax. This is likely to be a factor in why VAT revenues did not grow as fast as may have been expected given overall economic growth and increases in tax rates.