Effects of changes in the rates of Value Added Tax on VAT revenue in Ghana from 2003 to 2010

Thumbnail Image
Journal Title
Journal ISSN
Volume Title
One of the critical activities of any government is the raising of revenue to achieve fiscal policy objectives of matching expenditure to the revenue and reducing budget deficit. Most of these revenues are raised through taxes. The most viable of which is indirect tax which include VAT. The Value Added Tax was introduced in March 1995, but had to be withdrawn barely after three months of operations as a result of public outcry against the tax. It was however reintroduced in December 1998 after intensive consultation and repackaging. Since then, the VAT has contributed a lot to government total tax revenue. This improvement in revenue has made successive governments increase the VAT rate from the initial 10% to 12.5% and then to 15% which pertains now. The main purpose of this research was to investigate the effects of the changes in the VAT rates on VAT revenue. The researcher used ARDL cointegration procedure to analyse the effect of changes in the VAT rate on VAT revenue in Ghana. The study revealed that changes in the VAT rates have not had any significant effect on the VAT revenue. Rather, government expenditure and improvement in GDP had a more significant impact on the VAT revenue, even though the tax buoyancy was generally low and this is attributed to lapses in the tax system in Ghana. Based on the findings of this study, recommendations have been made and it is expected to serve as a guide to management of the VAT Service, policy makers and other stakeholders in tax revenue mobilisation.
A Thesis submitted to the Institute of Distance Learning, Kwame Nkrumah University of Science and Technology in partial fulfillment of the requirements for the degree of Commonwealth Executive Masters in Business Administration,