VAT IN GHANA: WHY IT FAILED

Seth Terkper

No 294373, Harvard Institute for International Development (HIID) Papers from Harvard University, Kennedy School of Government

Abstract: In March 1995, the Value Added Tax (VAT) became operative in Ghana. Yet, within three months the country's parliament had passed two separate laws to reinstate the flawed sales and service taxes, which the VAT was originally meant to replace. The decision to cancel the VAT was unique in many respects. First, Ghana had become only the second country to make such a major turnaround. The VAT had become a widely acceptable tax, implemented by over one hundred countries by the end of 1995. This meant that there was no dearth of experience in either advanced or developing countries for the design and implementation of the tax. Second, Ghana itself had pushed through a number of major tax reforms since 1985 as part of its structural adjustment program. It was thought, therefore, that Ghana had gained enough expertise in implementing this tax. This VAT program itself had taken two and one-half years of careful planning by the consultants and tax officials in the country. The objective of this paper is to highlight the factors that led to the cancellation of the tax. The author mentions the inability of the legislature to adhere to the implementation schedule as the main factor that derailed the program. Other observations include the unbridled institutional rivalry among the country's revenue institutions, the lack of coordination of other fiscal policies with the VAT, and a poorly implemented public education program. For many developing countries, especially those in sub-Saharan Africa that continue to introduce the tax, the documentation of Ghana's experience comes as a timely warning against complacency in the implementation of tax reform.

Keywords: International Development; Public Economics (search for similar items in EconPapers)
Pages: 41
Date: 1996-10
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Persistent link: https://EconPapers.repec.org/RePEc:ags:hariid:294373

DOI: 10.22004/ag.econ.294373

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