Why VAT?

Chapter 1 shows that in about half of all countries on the African continent, tax revenue as a percentage of GDP (called the tax ratio) is around 15 per cent or less, which is not enough to finance more human and economic development. The instrument for greater domestic resource mobilization is a broad-based consumption tax, such as a VAT. Current VATs, however, are riddled with exemptions, exclusions and zero rates which depress revenue, are highly distortionary and greatly complicate VAT administration. The abolition of exemptions for goods, services, and entities and, more generally, unnecessary design differentiations would reduce the weight and sway of legal opinions and increase the administrative resources available for monitoring compliance with the VAT. Revenue should benefit.