i

A STUDY OF THE CHALLENGES AND PROSPECTS OF THE VAT SERVICE IN

GHANA
(A CASE STUDY OF THE KUMASI METROPOLIS)
BY
MARY KONADU ASAFO AD1EI
OSEI DANSO
LORETTA AKPAI ANTHONY
REXFORD AMPONSAH NANCY
ARTHUR
A project work presented to the Business Studies Department of Christian Service University
College in partial fulfillment of the requirements for the degree of Bachelor of Business
Administration
1ULY, 2011
ii
STATEMENT OF AUTHENTICITY
We have read the university regulations relating to plagiarism and certify that this report is all
our own work and does not contain any unacknowledged work from any other source We
also declare that we have !een under supervision for this report herein su!mitted
NAME SIGNATURE DATE
Mary Konadu Asafo Adjei .......... ...........
Osei Danso ......... ...........
Loretta Akpai .......... ..........
Anthony Rexford Amponsah .......... ..........
Nancy Arthur .......... ..........
SUPERVISOR`S DECLARATION
" here!y declare that the preparation and presentation of the dissertation were supervised in
accordance with the guidelines on supervision laid down !y Christian Service University
College
Supervisor`s Name
Mr. Eric Atta Appiagyei ........... ...........
Head of Department`s Name
Mr. Stephen Banahene .......... ..........
iii
iiii
ABSTRACT
#ach country has different reasons for adopting $A% !ut the principal motive is the same& a
properly designed VAT system raises more revenue with less administrative and economic
cost than any other more broadly based tax
%he study sought to unearth the challenges of the $alue Added %a' ($A%) administration
and highlighted the prospects of $A% as a valua!le tool for policy formulation for ta'
mo!ili*ation in +hana
%he study was conducted using !oth qualitative and quantitative methods using primary and
secondary data %he primary data were the responses from questionnaires received from
respondents and also interviews in the form of formal and informal %he secondary data on
the other hand were gathered from written materials
%he study revealed that the $A% system in +hana runs on three key pivots, that is consumers,
agents and the $A% services %he finding of this study revealed each of these stakeholders in
the $A% system had its own pro!lems While consumers lacked major education on the
entire operations of $A%, the agents, on the hand have no intentions of charging $A% since
they want to remain competitive %he $A% service lacked the logistics and manpower to
check the infractions on the $A% law
Although the $A% administration has seen some improvement in the last five years, there is
still more room for improvements
i
vi
ACKNOWLEDGEMENT
We give our greatest appreciation to the Almighty +od for enduring mercies and inspiration
for a successful research work A work like this could only !e achieved through the support
of many people and we are most grateful for their constructive contri!utions
"n the first place, we owe lots of thanks to our supervisor- .r #ric Atta Appiadjei for his
useful ideas, criticism and invalua!le suggestions and a !ig thanks goes to .r /ayford 0siah
for taking us through all the tenets of a good research work We sincerely appreciate the
efforts of .iss Aisha %iwaah +yasi (%he !ranch .anager of 1eniel 2err 3oster and a %a'
.anager) who provided us with the necessary materials, te't, journals and information on ta'
!efore handing them over to our supervisor for further and critical review
Secondly, we particularly are grateful to the entire management and staff of the $A% regional
office, 2umasi !ranch for their untiring efforts in providing us with the necessary information
regarding the overall operation of $A% in +hana and particularly in the 2umasi .etropolis
Without their assistance and invalua!le advice, we could not have come this far
A special thanks goes the .r #ric Affriyie Adjimi, the !ranch manager of .antrac +hana
4td, 2umasi for making availa!le the office facilities for our regular meetings and
discussions
3inally, to all our colleagues for their contri!utions in diverse ways towards this study, we
say a !ig thank you
v
DEDICATION
%o our various families for their constant love and support
5
%o all our dedicated lecturers who supported us in diverse ways to !ring us thus far
vi
Contents
TABLE OF CONTENTS
Page
%itle 1age i
Statement of authenticity
A!stract
ii
iii
Acknowledgement
Dedication
iv
v
%a!le of Content
4ist of %a!les
vi
i'
4ist of figures '
CHAPTER
ONE INTRODUCTION TO THE STUDY
66 Background of the study 6
67 Statement of the pro!lem 8
69 %he o!jective of the study 8
68 Significance of the study :
6: Scope of the study :
6; 4imitation of the study ;
6< .ethodology ;
6< =rgani*ation of the study ;
TWO
76
LITERATURE REVIEW
"ntroduction <
77 %a'ing income or ta'ing consumption <
79 %he origin or destination principle <
78 %he invoice credit method or su!traction method >
7: 1roduct firms or sectors to !e free of $A% >
7; #'emption and *ero rating ?
vii
7< Single of multiple rates (@ates structure) 6A
7> %he need for $A% 66
7? $A% administration 69
76A Scope of $A% 68
766 %he need for $A% in +hana 6:
767 $A% administrationB +hana case 6;
769 "mplementation pro!lems 6>
768 1rospects of $A% in +hana 7A
7686 Strengthening the System of Collecting %a'es 7A
7687 1romotion of #'ports 76
7689 Spreading the Burden of %a' in a 3airer Way 76
THREE
96
METHODOLOGY OF THE STUDY
"ntroduction 79
97 Definition of varia!les 79
99 Sources of data 79
996 Sources of 1rimary Data 78
997 Sources of Secondary Data 78
98 Data Collection 78
986 %he 1rimary Data 78
987 1reparation of Cuestionnaire 78
989 "nterview 78
988 Data +athering "nstruments and Cuestionnaire Administration 78
9: Sample 1opulation 7:
9:6 Sampling Si*e 7:
9; Data Analysis procedure 7:
vii
ivi
FOUR
86
DATA PRESENTATION, ANALYSIS AND DISCUSSION
"ntroduction 7;
87 Analysis of data from consumersDclients of $A% 7;
89 Analysis of data from $A% agents 7?
896 3lat @ate Scheme and the retailers 9A
897 $at @egistration 9A
899 @ecord 2eeping 96
88 Analysis of data from the $A% service 99
886 4ogistics 99
887 1ersonnel 98
889 AccountsD@eturns 9:
8: #ffects of ta'es on consumers 9;
FIVE
:6
SUMMARY, CONCLUSION AND RECOMMENDATIONS
Summary of findings 9<
:7 Conclusion 9?
:9 @ecommendation 8A
:96 #ducation 8A
:97 %raining of Staff 8A
:99 .otivation of Agents and Staff 86
:98 Compliance 86
:9: #ffective .onitoring and Control of the $at System 86
:9; #ffective Communication 87
B"B4"=+@A1/E 89
A11#0D"F 8:
i
xi
LIST OF TABLES
%a!le 76 %a' @evenue with $A% 6:
%a!le 87 %he +rowth of $A% with +D1 in +hana 7AA;B7A6A 9;
x
LIST OF FIGURES
3igure 86 =ccupation 7;
3igure 87 /ow did you get to know $A% 7<
3igure 89 Do you !elieve it is important to insist on seeing a $A% 7>
3igure 88 Do you know how much to pay on every service or product under $A% 7>
3igure 8: Business Sector 7?
3igure 8; $A% @egistration 9A
3igure 8< Which of the following !ooks do you keepG 97
3igure 8> /ow does $A% Affect EouG 99
1
CHAPTER ONE
11 BACKGROUND OF THE STUDY
%he government or administrative !ody of a nation or community needs financing in order to
e'ecute its roles successfully and carry out its responsi!ilities %he a!ility to do this depends
on the sources from which the government derives its revenue
%he sources and the adequacy of government revenue will to a large e'tent determine the
quality of service and the specific roles the government can perform "t is for these reasons
that every government is concerned with collecting adequate revenue from ta'es to ena!le it
perform its roles to the satisfaction of the citi*ens
Sources of government revenue refer to the various avenues from which the government gets
money to meet its e'penditure 3or the generation of revenue, governments all over the world
derive its revenue from several sources %he major source of government revenue is ta'
%otal ta' revenue in relation to +D1 was +/H8,8698m equivalent to 6<AI of +D1 for the
year 7A6A (source& 7A66 !udget, section ;?) /owever, ta' is classified into two main types
%hese are&
i Direct ta'
ii "ndirect ta'
Direct taxes
%hese are ta'es !ased on either the income or wealth of the ta'Bpayer %he following are the
main forms of direct ta'es&
"ncome ta' is levied on individuals at a standard rate "ncome ta' is mostly of progressive
nature where higher income earners pay more than the lower income earners
i) Capital gain ta' is imposed on the increase in the value of property !etween the time of
its purchase and its sale
ii) Basic rate is a ta' imposed on the residents !y the various metropolitan assem!lies
iii) Company ta' is paid !y companies "t is levied on the profits of companies
2
Indirect taxes
%hese are ta'es which are paid indirectly !y consumers who purchase goods and services
%he following are the main types of indirect ta'es which also constitute one of the major
sources of revenue for the governments of many countries
i "mport duties are ta'es imposed on imported goods and services %hey are also known
as custom duties
ii #'port duties are ta'es levied on goods leaving the country to other countries
iii #'ercise duties relate to manufactured units and the amount of ta', more often than not,
is determined !y how many units of output
"n addition to the two mentioned a!ove, there are other sources of revenue from which many
governments derive revenue to ena!le them to perform their roles in the socioB economic and
political development in their countries %he +hanaian economy is no e'ception %he
following are some of the nonBta' revenue sources
Grants
%hese are usually received from international agencies %hey are funds or capital items given
out freely from other countries especially the developed ones
Income and fees
%hese are revenue that accrues to government from some incomeBgenerating activities like
state owned !usiness enterprises Sale of property or assets of the state that may not !e
yielding apprecia!le returns can also !ring some revenue to the government
Loans
%hey are financial assistance that are granted to the government !y multinational financial
organi*ations such as the World Bank, African Development Bank (ADB) and "nternational
.onetary 3und (".3) which the government has to repay with interest at a specified date
The Value Added Tax
Before the advent of the $alue Added %a' (Act 8>;) the government of +hana mo!ili*ed its
revenue from the sources listed a!ove %he law provided for the imposition of $A% as a
3
replacement ta' for sales ta', entertainment duty, hotels and restaurant ta', !etting ta' and
advertisement ta' with effect from 6
st
.arch 6??:
/owever, in less than four months of the introduction of $A%, it was withdrawn #arly in
6??;, a reconstituted $A% project was set up on a directive contained in the presidentJs
sessional addresses to parliament in Kanuary 6??; %o start with, the $A% project undertook a
thorough evaluation of the outcome of the actual implementation for the two and half months
that the ta' operated in +hana
Apart from the study of the $A% project, the =verseas Development Agency of the British
+overnment that had provided financial assistance and technical support during the
implementation in 6??: dispatched a team to +hana to study what went wrong with the
implementation
"n 3e!ruary 6??> the $A% (Act :;8) was passed to put +hana on a firm course to join the
ranks of over 6AA countries that are currently operating $A% "ndeed, in Africa, countries
such as Cote dJivoire, %ogo, Burkina 3aso, 0igeria, 2enya, Uganda, Benin, Lam!ia, South
Africa, Algeria and others had introduced the ta' for some time now
.any people have wondered why the government decided to reBintroduce $A%
The reasons for introducing VAT in Ghana
i %o e'pand and diversify the ta' !ase
ii %o adopt a uniform !asis for collecting the general consumption ta'es
iii %o improve the efficiency and equity of the mechanism for collecting ta'es
"t must !e noted that $A% is merely a replacement for the sales and service ta'es that had
operated in the country for over thirty years !ut not a superimposition on the e'isting ta'
structure $A% was to !e charged at 6AI from the effective date
"n the year 7AAA, the $A% was increased to 67 MI, the increase of 7 MI was to !e paid into
an #ducation 3und called the +hana #ducation %rust 3und (+#%3und)
4
1.2 STATEMENT OF THE PROBLEM
.any western countries as well as developing countries in Africa have tried the $alue Added
%a' ($A%) as an indirect system of ta'ation $A% as a system of indirect ta'ation for
revenue mo!ili*ation presents a great num!er of prospects in our !id to develop as a nation
0onetheless, the golden idea as $A% may !e, there are underlying impediment inherent in
the administration as well as several social and economic pro!lems that surround its efficient
operation
$A% like other revenue mo!ili*ation system relies greatly on proper and effective accounting
records kept !y operators %his feature if missing may render the operation of the $A% far
from success
%he least said a!out education of the agents the !etter 4aws enacted !y our policy makers
regarding $A% are not still understood looking at the current revenue loss through improper
filling of $A% returns reported every month (Daily +raphic Kuly,;,< 5 ? August, 7AA:-
#nquirer, %hursday, 68B6< Kuly 7AA: ed), the mode of computing $A% seem to !e the
greatest of all .ost consumers as well as the agents do not understand how the $A% system
operates and since the operation of $A% depends a lot on invoice computation, the issue
raises a great o!stacle to effective operation of $A% system %hese and other pro!lems need
to !e investigated
"n addition to the a!ove, Dr 0ii .oi %hompson in 7AA; argued on .etro %$ +ood evening
+hana that the $A% service is operating far !elow 7:I of its capacity
What is more, the knowledge of the operations of $A% among consumers and agents is very
low and this has resulted to the low generation of income from the $A% system
1.3 RESEARCH OB1ECTIVES
%he study investigated the challenges and prospects of the $A% services regarding the $alue
Added %a' ($A%) in +hana %he !road aim of the study is to discover the challenges facing
$A% administration and to propose appropriate interventions that may !e used !y the $A%
service to enhance and monitor its operation %he research mainly focused on the analysis of
the challenges of $alue Added %a' administration and prospects in line with the increasing
demand on +hana as a developing economy to mo!ili*e revenue for development
5
"n order to discover the pro!lems and prospects of the study, it was important to discuss the
$A% administration in detail %his study had the following goals&
i %o analy*e the prospects of $A% visBaBvi the growth of the economy (+D1)
ii %o analyse the challenges faced !y the $A% service in a !id to generate revenue for
+hana as a developing economy
1.4 SIGNIFICANCE OF THE STUDY
%his study will !ring out the challenges of the $alue Added %a' ($A%) administration and
highlight the prospects of $A% as a valua!le tool for policy formulation for ta' mo!ili*ation
in +hana Assist the .inistry of 3inance (.=3), the $A% service, ta' consultants, investors
and other revenue mo!ili*ation !odies to improve upon their revenue mo!ili*ation and in
their assessment, may employ these findings %he results of the research are important
!ecause of the following reasons&
i A firm understanding of the pro!lems of $A% administration and its prospects that
this thesis hopes to uncover may provide a !asis for further research in the area
ii Detailed analysis of the pro!lem of $A% will help unknot the challenges facing these
incomeBgenerating policies, which are the nerve centre of developing economy in
todayJs glo!al market and find out its prospects for national revenue policy
formulation
iii 3inding from the study will help contri!ute to +hanaJs revenue generating policies !y
restructuring the ta' administration policies regarding $A%
"t was envisaged that the findings from research would to a large e'tent serve as a !asis for
further research !y economists and the @evenue Agencies +overning Board to advice the
government whether to maintain or increase the $A% rate
"t is also to help !roaden the knowledge of interested parties, institutions, and companies
a!out the $A% system and the impact it has in the revenue mo!ili*ation in +hana and prevent
citi*ens from evading $A%
1.5 THE SCOPE OF THE STUDY
%he study was limited to the @evenue Agencies (ie the $A% =ffice) in 2umasi in the
Ashanti @egion "ssues of $A% administration in +hana, implementation, introduction,
challenges and prospects in line with ta' administration policies in +hana will !e discussed
6
%he study will also look at the measures proposed to ensure the smooth operation of the $A%
system having regards to the economic and social impact that the system might generate from
7AA: to 7A6A fiscal year
1.6 LIMITATIONS OF THE STUDY
Difficulty in gaining access to relevant information that pertains to the study
i 3ailure on the part of respondents to complete the questionnaires administered to them
!ecause it related to ta'
ii 3inancial constraint was also !e a pro!lem to the study since we had to go round the
.unicipality for information needed to complete the work
iii "lliteracy and ignorance on the part of the respondents was another factor that
hindered progress of the study
iv %ime constraints were also a limiting factor
v Despite all these limitations the researchers wish to state that the findings remain
un!iased
1.7 METHODOLOGY
%he sources of data used for the study were !oth primary and secondary data %he primary
data were the response from questionnaires received from respondents and also interviews in
the form of formal and informal interviews used %he primary data has !een the convenience
sampling procedure %he secondary data on the other hand were gathered from !ooks,
journals and pu!lic notices from the $A% services
1.8 ORGANIZATION OF THE STUDY
%he study is organi*ed into five chapters
Chapter one reviews the introduction and the !ackground of the study , statement of pro!lem,
purpose of the study, research questions, significance of the study, limitations, methodology
and organi*ation of the study
Chapter two looks at the literature review
Chapter three is centered on the methods that were used in gathering the data thus the
methodology
Chapter four covers the analysis and findings of the data
3inally, chapter five provides the summary, conclusions and recommendations
7
CHAPTER TWO
2.1 INTRODUCTION
LITERATURE REVIEW
%his chapter looks at the critical issues involving the implementation and effective monitoring
of $A% as a system of ta'ation "t e'plores the relevant generic pro!lems levelled against the
$A% system as an integral part of the revenue machine of developing economies which have
resorted to it
2.2 TAXING INCOME OR TAXING CONSUMPTION
%he difference !etween consumption $A% and income $A% emerges from the treatment of
capital depreciation (Bahitia,6??>) "f a firm is allowed to deduct the entire credit when the
capital equipment is purchased, the system is termed as consumption $A% "f the firm is
allowed to deduct the credit as the equipment depreciates over time, the system is termed as
an income $A% %here is a conventional !elief that ta'ing income entails higher welfare
(efficiency) cost than ta'ing consumption (%an*i, 7AA6) According to proponents of this
idea, the reason for this is that income ta', which contains elements of !oth a la!our ta' and a
capital ta', reduces the ta'payerNs a!ility to save %he argument is that increasing income
ta'es should not !e considered a via!le option on the grounds of !oth policy (!ecause of their
perceived negative impact on investment) and administration (!ecause their revenue yield is
less certain and less timely than that from consumption ta') =n equity grounds, on the other
hand, ta'ing consumption has traditionally !een thought to !e inherently more regressive
(that is harder on the poor than the rich) than ta'ing income Data from industrial and
developing countries show that the ratio of income to consumption ta'es in industrial
countries has consistently remained more than dou!le the ratio in developing countries (that is
compared with developing countries, industrial countries derive proportionally twice as much
revenue from income ta' than from consumption ta')
2.3 THE ORIGIN OR DESTINATION PRINCIPLE
%he choice !etween the origin or destination principle is made in ta'ing international trade
(@iswold, 7AA9) A $A% is said to use the origin principle when it ta'es value that is added
domestically to all goods, including goods that are su!sequently e'ported, !ut does not ta'
value that has !een added a!road and is em!odied in goods that are imported and sold
domestically (+ills et al, 6??A) Under the origin principle, therefore, e'ports are ta'a!le and
imports are e'empt %his regime is compati!le with the income $A% =n the other hand a
$A% is said to use the destination principle when it ta'es all value added, at home and
a!road, to all goods that have as their destination in the consuming country (+ills et al, 6??A)
"n this case, therefore, e'ports are e'empt and imports are ta'a!le While the destination
principle is wellBsuited to the consumption $A%, the origin principle is compati!le with
income $A%
%he destination principle is used !y central governments in most occasions "t is argued that
the preference for the destination principle may !e due to the general preference for the
consumption $A% and a mercantilist inclination to emphasi*e economic activity
(employment) more than consumption (+ills et al 6??A) %he choice !etween the destination
and origin principles will influence the choice of the method for computing the amount of ta'
2.4 THE INVOICE CREDIT METHOD OR SUBTRACTION METHOD
%he $A% system has to also choose !etween two methods of computation for determining
$A% lia!ility %hese methods of computation are either the invoice credit method or
su!traction method (@iswold, 7AA9) With the invoice credit method, $A% is charged and
paid on invoices, thus the producer will remit the difference !etween $A% received and $A%
paid %he su!traction method uses company accounts to determine $A% lia!ility !y
su!tracting ta'a!le receipts less ta'a!le purchases to o!tain total value added "n other words,
the su!traction method of computing a firmNs $A% calls simply for su!traction of total
purchase from the sales of the firm in question and the !alance, the value added !y this firm,
is then su!ject to the $A% rate %he invoice credit method is preferred and is used throughout
the Su! Saharan Africa (@iswold, 7AA9) 3urther, it is widely accepted that the transactions
!ased on invoice credit method provides several advantages such as the a!ility to deal with
different rates and minimi*ing ta' evasion !y providing an audit trial "t is no wonder that this
approach is what +hana uses
2.5 PRODUCT FIRMS, OR SECTORS TO BE FREE OF VAT
Certain products and services are often freed from the value added ta' (+ills et al, 6??A) %his
is !ecause they are to !e e'ported (destination principle) !ecause they are important items in
the !udgets of lowBincome families (food), or !ecause they create !enefits for society in
general (education)
Certain firms are commonly freed from $A% on all their sales !ecause the administrative and
compliance costs are large compared with the ta' revenue to !e o!tained (+ills et al 6??A)
Compliance costs refer to how much does it cost the ta'payer to comply with the ta' law
quite aside from the ta' itself 3or e'ample, all firms whose annual sales are less than a
specified amount may !e e'cluded
3inancial firms, especially !anks and insurance companies, are commonly free of $A%
!ecause the value they add cannot !e readily defined and computed (+ills et al, 6??A) "n
certain other service industries, all firms are free of ta' for the same reason Whole sectors of
the economy, retailing, for instance, may !e left outside the scope of the $A%, chiefly for
administrative reasons %he schedule 6 of the $A% act in +hana enumerated categorically,
supplies such as animals and livestock, goods for the disa!le, educational services, crude oil,
transportation, land and !uilding and construction, financial services(details given in the
definition of terms) as e'empts in supply
2.6 EXEMPTION AND ZERO RATING
As the name indicates, e'emption means no $A% is charged on the supply and no credit can
!e taken for $A% paid on purchases used to make the supply while *eroBrating means the
supply is charged with a $A% at *ero percent (AI) !ut credit can !e taken for $A% paid on
purchases used to make the supply #'emption of an entire firm on all its sales is allowed
usually !ecause the firm is !elow a certain si*e and in order to facilitate administration or
compliance (+ills et al 6??A) %he aim of *eroBrating, on the other hand, is to lift the entire
$A%, including that already collected at earlier stages, from a particular good or service %his
is accomplished !y allowing full credit for the ta' shown on the invoices for purchases of the
good in question or of inputs into it "t is argued that e'emption should !e granted where the
lawmaker would rather not free the firm, !ut feel compelled to do so owing to administrative
and compliance difficulties while *eroBrating is to !e given when the purpose is to lift the
$A% completely from a good or service, for social or economic ends (+ills et al 6??A)
LeroBrating is often said to !e unsuita!le for developing countries just !ecause it may require
ta' refunds (+ills et al, 6??A) %his is quite a weak argument since ta' refunds are important
in esta!lishing fairness for ta' authorities in these countries =ne line of argument against
e'emption is that it complicates administration, erode the ta' !ase and distort inputBchoice
decisions and hence they have to !e kept to a minimum (+ills et al, 6??A) According to
1
01
proponents of this argument where e'emptions have !een almost entirely eliminated (as in
Chile), the $A% has !een much easier to administer and therefore quite successful
#'emptions, according to these proponents, require additional record keeping to segregating
ta'a!le from e'empt sales and in practice the destination !etween what is e'empt and what is
ta'ed is often questiona!le or su!jective Some items are e'empted to improve the
distri!utional impact of the ta'Ba potentially reasona!le tradeoff while others might !e
e'empted for administrative or political reasons %his is e'actly why developing countries
e'empt particular commodities as they are influenced more !y distri!utional o!jectives than
administrative concerns
Administrative issues are more important under *eroBrating (+ills et al 6??A) Since *eroB
rating increases the num!er of $A% refunds, most developing countries astutely have limited
it to e'ports "n addition, ta' administrations in such countries are poorly equipped to handle
refunds of any kind, and adding to the num!er of refunds would divert administrative
resources from enforcement of the $A%
2.7 SINGLE OR MULTIPLE RATES (RATE STRUCTURE)
.any countries employ multiple rates apart from a *ero rate in their value added ta'es
.ultiple rates offer a great opportunity to fit the $A% to various social and political ends
(+ills et al, 6??A) A low rate, rather than e'emption or a *ero rate, is sometimes granted to
necessities, and lu'uries may !e su!ject to a rate higher than the standard =ne line of
discussion commonly raised in this regard is what should !e the standard $A% rate (+ills et
al 6??A) Some traders and ta' administrators claim that standard rates of 6>B7A percent are
unenforcea!le in developing countries According to these persons, high $A% rates provide
such strong incentives for evasion that ta' enforcement !ecome all !ut impossi!le given the
scant administrative resources availa!le in developing countries =ther critics support this line
of argument also %o say that high rates tend to distort the allocation of resources !ecause
they help inefficient enterprises !y charging $A% on their sales and not paying the ta' to the
government that allow failing !usinesses to continue to operate Some opponents of high rates
even advocate repealing the $A% and returning to a cascade turnover ta' which could provide
a!undant revenues with much lower rates Some critics oppose this idea of high $A% to !e
unenforcea!le in developing countries %heir line of argument is two fold (+ills et al 6??A)
3irst, !oth Bra*il and Chile have had considera!le success in implementing a $A% with a
standard rate of around 6>B7A percent Secondly, in developing countries a su!stantial
1
11
proportion of $A% revenue is collected at the import stage and a large percentage of the rest
is collected from relatively few enterprises and hence, in these circumstances, there is little
scope for improving compliance and revenue in the shortBterm through reductions in the
standard $A% rate which merely result in an immediate loss of revenue
%here are also critics that say that enforcing of either high or low $A% is unlikely to !e so
without effective administration (+ills et al, 6??A) According to these, scarce administrative
resources must !e aimed at carefully chosen o!jectives to ensure an appropriate level of
compliance especially when the standard rate is raised to meet shortBterm revenue needs %his
means, the administration has to act quickly and effectively so that the increase in $A% rate
can yield the desired revenue %his is !ecause even large enterprises may fail to pay the ta' if
they are e'periencing financial difficulties owing to a general downturn in the economy (+ills
et al, 6??A)
#'perience in !oth industrial and developing countries suggest that a $A% imposed at low
rates may not !e worth the administrative and compliance costs involved in the switch to the
$A% (+ills et al, 6??A) %he most comprehensive governmental survey of $A% options for
the US also concluded the $A% is not a ta' to impose at low rates, !ecause of the additional
investment in ta' administration that would !e required !efore and during the first few years
of operation of the ta'
.any developing countries have adopted two or more $A% rates .ultiple rates are
politically attractive !ecause they ostensi!ly though not necessarily efficiently serve an equity
o!jective, !ut the administrative price for addressing equity concerns through multiple $A%
rates may !e higher in developing than in developed countries (+ills et al, 6??A) "n +hana
the rate has !een adjusted to 6:I which include 0/"4 (7:I) and a portion to the
+#%3U0D for political promise fulfilment since these portions were directed to this areas, it
however looked politically magnetic
2.8 THE NEED FOR VAT
$alue added ta' is required mainly to prevent cascading, that is, to avoid ta'ing any
ingredient of the final product more than once (+ills et al, 6??A) 3or e'ample, if ta' is
imposed on a sale !y a steel manufacturer to an automo!ile manufacturer and again on the
full value of the automo!ile when it is sold to a wholesaler or retailer, the steel ingredient is
1
21
ta'ed twice Alternatively, cascading occurs when a ta' on inputs is not refunda!le and
charged again on output
"t is said earlier that one of the requirements for an efficient ta' system is the fact that the ta'
levied should !e kin proportion to the level of income $A% fulfils this requirement in that its
!urden is shared among all residents, each according to his level and type of consumption
.oreover, it has the advantage of reducing the cost of production of industries through its
inherent refund system and the fact that it does not !urden e'ports
%he need for $A% also emanates from the very weaknesses of the sales ta' that it is intended
to replace (1urhoit, 7AAA) 3irstly, sales ta' has a cascading effect as a result of the fact that it
is levied on the gross value without allowing any credit or setBoff for the ta'es paid on inputs
As a result, consumer prices will increase !y an amount higher than what accrues to the
e'chequer !y way of revenues from it i Besides, there is the pro!lem of multiplicity of
rates which not only dulls the progressive effects that are anticipated !ut also generates the
need for further calculations !y the sellers and increases the cost of compliance with little
effect on revenue 3urther, it is prevailed !y the characteristic of heterogeneity which arises
from the fact that apart from general sales ta', most states levy an additional sales ta' or a
surcharge Additional ta' is !ased either on their total turnover or on the graduated turnover
with different rates for different sla!s of turnover What is more, the e'isting system of ta'es
militates against ancillary industries and encourages them to produce more and more of the
inputs needed rather than purchase them from ancillary industries 4ast !ut not least, the
e'isting system of commodity ta'es is nonBneutral thus- it interferes with the producerNs
choice of inputs as well as with the consumersN choices of consumption, there!y leading to
severe economic distortions
"t is argued that $A% would take away all the a!ove pro!lems and would avoid the distorting
economic effects (1urhoit, 7AAA) %his means, for e'ample, it would not cause cascading, nor
would it cause vertical integration of firms Also it offers total transparency of the incidence
of ta' as $A% is a multiBstage sales ta' levied as a proportion of the value added A very
important advantage quoted in favor of $A% is that of lesser ta' evasion (Bahitia, 6??>) %his
happens !ecause the ta' is divided into parts and therefore the incentive to evade ta' !y any
firm is reduced "f a firm understates its output, it will !e caught !y the disclosures of the
firms !uying inputs from it "t is also claimed that $A% is conducive to efficiency since a
1
31
firm is not e'empted from its ta' lia!ility even it runs into a loss (Bahitia, 6??>) .oreover,
as it pays a ta' not on its profits !ut on the value produced, it tries to improve its performance
and reduce the cost of production
2. 9 VAT ADMINISTRATION
%he major activities in $A% administration are identifying ta'payers, processing returns,
controlling collections, making refunds, auditing ta'payers and levying penalties =n the part
of administration, it is a prior task to identify the ta'payers "n this connection, preparation of
a single master file, !ased on unique %a' "dentification 0um!er (%"0) is crucial and this
ensures that each ta'payerNs account contains all the relevant ta' and payment data for that
ta'payer alone (+randcolas, 7AA9)%he %"0 system is registration mechanism in which a
ta'payer is given a single identification num!er to !e used in administering all ta'es %he %"0
system encompasses personal and !usiness profiles of the ta'payers including full name,
address, !usiness information (like annual turnover), !anking information (whether he or she
has a !ank account), and the num!er of !ranches, contact address and related information
Different !usiness entities owned !y one company or person is categori*ed under one %"0
num!er %his will avoid duplication and falsification of addresses and information serving as
a prete't upon the default "n addition, the %"0 has to !e feasi!le for comparison among
different ta'es such as sales ta' and the income ta' (including ta' on corporate income) %he
%"0 system has the advantages of aiding to draw a comparison of ta' statistics with the
national accounts, facilitating proper use of the data!ase of various systems and enhancing the
financial recording system of the !usiness communities
=n account of the requirements of $A%, the even functioning of $A% would perilously
depend upon ta'payers keeping careful and complete records (1urhoit, 7AAA) %o minimi*e
the likely amount of high compliance costs, however, sellers are e'pected to maintain
sufficient details to have information on the following aspects (1urhoit, 7AAA) %hese are
particulars of invoices giving details of ta' on sales and credit on purchases, details of
accounts giving information of all purchases and sales and interaction !etween invoices,
purchase and sales accounts with the ta' return form
%he other part of $A% administration is assessment on $A% e'ecution %his includes
identifying ta'payers and ta' evaders as well as the registered and unregistered ta'payers
among the !usiness community "t follows that the concerned ta' authorities would take legal
1
41
measures against people who do not comply with the $A% law, for e'ample, on those who
conceal invoices and engage in illicit !usiness transactions "t is not only the authorities who
should !e responsi!le in assessment of e'ecution of $A% !ut the consumers themselves have
a key role to play
%he human resource element is essential in $A% administration %rained personnel are what
actually most developing economies lack and this has forced them, for instance, to organi*e
their $A% activities under e'isting ta' administrative structures Consumers need to make
sure that !usinesses that levy the ta' are registered with the $A% administration as evidenced
!y a registration certificate which is e'pected to !e posted visi!ly on the esta!lishmentNs
premises, they should receive receipts for the goods and services they purchase and they have
to make sure that the receipt clearly indicates the $A% registration num!er and the ta'a!le
items
2ey decisions that must !e made !efore introducing a $A% concern the choice of
organi*ation to administer the ta' and the organi*ational changes required 0early all
developing countries that apply a $A% through the retail stage have assigned its
administration to the same organi*ation that administers income ta'ation, which usually also
administered the ta'es that the $A% replaced
2.10 SCOPE OF VAT
%he history of ta'ation reveals that no other ta' has swept the world in more than thirty years
from theory to practice %he economic and technological changes of the second half of the
century have made $A% quite an essential modern ta' than ever "t will not !e an
e'aggeration if one were to say that the emergence of the $A% as an important and elastic
source of revenue over the last decades is unparalleled in the history of ta'ation 0onetheless,
$A% as a ta' has its general and local scope depending on the laws and countries within
which it is adopted Depending on the laws which esta!lish the $A%, it may cover areas of
manufacturing, processing, retailing, wholesaling among others Some goods and services
may !e neither ta'a!le nor e'empt even though made !y ta'a!le person %o illustrate,
supplies made outside the country or not in the course of !usiness are outside the scope of
$A% A foreign trade which took place outside the frontiers of +hana is outside the scope of
$A% !ecause it effectively took place outside +hana
1
51
COUNTRY 3 YRS PRE-VAT AS OF
GDP
3 YRS POST- VAT AS
GDP
Benin(6??6) 8>I <8I
Burkina 3aso( 6??7) <AI <7I
+a!on(6??:) <;I <;I
+uinea(6??;) ?;I >>I
2enya(6??A) 69:I 6:AI
%ogo(6??:) ;9I ?9I
Uganda(6??;) 68:I 68<I
Lam!ia(6??:) 66<I 679I
2. 11 NEED FOR VAT IN GHANA
As pointed out in chapter one, developing countries have !een una!le to generate sufficient
revenue to finance their economy %his emanates from these countries ta' system which can
!e characteri*ed as raising low amounts of ta' revenue as a result of low amounts of per
capita income, the su!sistence nature of their economy ( mostly in agriculture), poorly
structured ta' systems and weak ta' administration $A% is said to !e the revenueBraising
tool in the developing world %he ta!le !elow shows total indirect ta' revenues (ta'es on
international trade and ta'es on goods and services) !oth !efore and after the introduction of
the $A% for eight selected economies in Su! Saharan Africa %he actual year of introduction
of the $A% was not used in the calculation due to some of the $A%Ns is !eing introduced at
different times throughout the year %he results depicted in the ta!le are %a'D+D1 ratios !oth
!efore and after the introduction of the $A% and the years in the country column are the
times the $A% has first !een introduced
Indirect Tax Revenue with VAT.
Table 1
Source: World Development Indicators 2001
%he introduction of $A% has made different impacts on the eight selected countries as can !e
o!served from the %a!le a!ove While the effect is neutral for countries like Burkina 3aso,
+a!on and Uganda, the introduction of $A% has made tremendous impact on the economies
of Benin, 2enya and %ogo
1
61
%he $A% is progressive in its incidence, and the higher revenues !rought a!out !y the $A%
can provide additional funds for povertyBreducing spending, including primary education
(.uno* and Cho, 7AA9)
%he application of the $A% system has !een necessitated !y the following reasons
i +hanaNs total revenue from e'cise ta' and sales ta' account only for 6<I and 68Iof
the +D1
ii %he sales ta' did not allow collection of the ta' on the added value created wherever
sales transaction occurred
iii %he value added minimi*es the damage that may !e caused !y attempts to avoid and
evade the ta' and helps to ascertain the profit o!tained !y ta'payers
iv $alue added ta'ation enhances savings and investment, as it is a consumption ta'
@eplacement of the sales ta' !y value added ta' enhances economic growth and
improves the ratio relationship !etween government revenue and gross domestic
product Same line of argument can !e proposed in introducing $A% ie the deficiency
in sales ta' %he sales ta' !ase in +hana was narrow !ecause it was limited to imports,
manufactured goods and a few selected services (%erkper, 6??;) Because credit was
given only for ta'es paid on raw materials, the ta' had a cascading effect, distorted
efficient resource allocation, and thus impeded economic growth /ence, in
comparison to the sales ta', the $A% ta'es services in addition to production, grants
*eroBrating to e'ports and gives e'emptions to fewer !asic products
2.12 VAT ADMINISTRATION- GHANA'S CASE
According to Section : of the $alue Added %a' Act, any person who carries on a !usiness
activity which makes it remitta!le as a ta'a!le person can apply for registration An applicant
shall make the application within 9A days of !ecoming registra!le !y filling the appropriate
$A% @egistration 3orm
%he law on $A% in +hana, the $A% Act 6??> (Act :8;) !y its structure, however provides
some features that tend to enhance !usiness productivity and there!y encourage investment
%he important features are the provisions relating to e'emptions, *ero rating, relief as well as
some special dispensations put in place for the administration of the ta' %he $A% Act
requires that a person who carries on ta'a!le activity and is not registered is required to file
1
71
an application for $A% registration with the $A% Service if at the end of any period of
twelve calendar months the person made, during that period, ta'a!le transactions the total
value of which the total value is greater or equal to ninety thousand +hana cedis When a
person carrying out ta'a!le transactions files an application to !e registered for $A%, the
Commissioner is required to register the person in the $A% register and to issue a certificate
of registration within 9A days of the registration After the application for registration has
!een made, the $A% Service, will give $A% registration and %a' "dentification 0um!er
(%"0) %he Authority shall issue a $A% registration certificate containing such details as the
full name and other relevant details of the registered person- the date of issuance of the
certificate the date from which the registration takes effect- and the registered personNs
ta'payer identification num!er %his is followed !y a certificate of @egistration that has to !e
displayed at the main !usiness premises
A person registered for $A% that carries out a ta'a!le transaction is required to issue a $A%
invoice to the person who receives the goods or services A $A% invoice is a document
e'ecuted in the form stipulated !y the $A% Service and containing the following information&
3ull name of the registered person and the purchaser, and the registered personNs trade name,
if different from the legal name, ta'payer identification num!er of the registered person and
the purchaser, num!er and date of the $A% registration certificate, name of the goods shipped
or services rendered, amount of the ta' paya!le transaction, amount of the e'cise on e'cisa!le
goods, sum of the $A% due on the given ta'a!le transaction, the issue date of the $A%
invoice and serial num!er of the $A% invoice
%he products that are e'empted from $A% in +hana are& the sale, transfer or lease of
immova!le property- the rendering of medical services- the rendering of educational services-
the supply of electricity and water- post office operations and the provision of pu!lic transport
permits and license fees %he design of the $A% includes concessions to small scale !usiness
to lessen the administrative !urden, such as the relief from the requirement to register to
collect $A% LeroBrated supplies include the supply of e'port of goods and services
%a'payers who have the o!ligation to maintain !ooks of accounts shall have to register with
the $A% Service, type and quantity of vouchers they use !efore having such vouchers
printed Any printing press !efore printing vouchers of ta'payers shall ensure that the type
and quantity of such vouchers is registered with the %a' Authority %he $A% Service shall !e
empowered to investigate any statements, records and !ooks of account su!mitted !y any
1
81
person at any time !y sending duly accredited inspectors to check the statements, records and
!ooks of account, or any vouchers , stocks or other material items at the personNs place of
!usiness or practice- requiring the person or any employee who has access to or custody of
any information, records or !ooks of account to produce the same and to attend during normal
office hours at any reasona!le convenience ta' office and answer any questions relating
thereto- and requiring any person including a municipality, !ody, financial institution,
department or agency of 4ocal government or District Assem!ly to disclose particulars of any
information or transactions
%he $A% in +hana employs the invoice B credit method as the !asis for $A% as only the
value added at each stage of the transaction is su!ject to the ta' %he rate introduced was
67:I and later adjusted to a uniform rate of 6: percent (including 7:I to 0/"4) on most
goods and services, with a *ero rate on e'ports and e'empted goods and services %he scope
of e'empted goods and services differs from that under the sales ta'
2.13 IMPLEMENTATION PROBLEMS
+hana shares developing countriesN pro!lems in their effort to esta!lish efficient ta' systems
in general (%erkper, 6??<) 3irstly, most workers in these countries are typically employed in
agriculture or in small, informal enterprises and this means the possi!ility of regular or fi'ed
wages is rare as they receive cash payments(ie, off the !ooks) that further means difficulty to
calculate the !ase for an income ta' (=tieku,6?>>) @elated to this, as most of the workers do
not make transactions in large stores, the role played !y income ta'es and customer ta'es is
limited and little possi!ility e'ists for the government to achieve high ta' levels Secondly, "t
is difficult to create an efficient ta' administration without a wellBtrained staff, when money
is lacking to pay good wages to ta' officials and to computeri*e the operation (or even to
provide efficient telephone and mail services), and when ta'payers have limited a!ility to
keep accounts %hirdly, !ecause of the informal structure of the economy in many developing
countries and !ecause of the financial limitations, statistical and ta' offices have difficulty in
generating relia!le statistics %his lack of data prevents policymakers from assessing the
potential impact of major changes to the ta' system As a result, marginal changes are often
preferred over major structural changes, even when the latter are clearly prefera!le %his
perpetuates inefficient ta' structures 3inally, "ncome tends to !e unevenly distri!uted within
developing countries Although raising high ta' revenues in this situation ideally calls for the
rich to !e ta'ed more heavily than the poor, the economic and political power of rich
1
91
ta'payers often allows them to prevent fiscal reforms that would increase their ta' !urdens
%his e'plains in part why many developing countries have not fully e'ploited personal
income and property ta'es and why their ta' systems rarely achieve satisfactory progressivity
(in other words where the rich pay proportionately more ta'es)
Alternatively, it can !e said that the whole ta' system in +hana is faced with such pro!lems
as unsatisfactory level of record keeping and administration inefficiency, lack of sufficiently
educatedDinformed ta'payers, there is high cost of ta' compliance, e'tensive evasion, overB
*ealous and corrupt ta' officials (Daily +raphic, Kuly <, 7AA:, %he 4ens, Kuly ;, 7AA:) and
e'tremely narrow ta' !aseBin many of the countries- twenty to thirty (7AB9A) large !usinesses
account for twoBthirds of the countryNs ta' revenue
"t is o!vious that the introduction of any new ta' scheme will invaria!ly !e met with
reservations and mi'ed reactions from the general pu!lic in any country, irrespective of the
countryNs socioBeconomic status or its level of development Because $A% is a new and
sophisticated ta' that differs significantly from the classical ta' schemes with which the
people were familiar, various misconceptions regarding its impact, its application, and its
!enefits to the national economy are normal in the initial phase of its application Several
wellBmeaning !ut insufficiently informed individuals, or otherwise people with ulterior
motives, have misled the pu!lic into thinking that its impact is cumulative and claimed that its
effect on consumer spending would go far !eyond even the 67:I percent flat rate that the
ta' imposes which led to many social tensions in +hana at the initial attempt
While $A% has !een adopted in most developing countries, it frequently suffers from !eing
incomplete in one aspect or another (@iswold, 7AA9) .any important sectors, most nota!ly
services and the wholesale and retail sector have left out of the $A% net, or the credit
mechanism is e'cessively restrictive (that is there are denials or delays in providing proper
credits for $A% on inputs), especially when it comes to capital goods
.uno* and ChoNs study on the social impact of ta' reform in #thiopia for e'ample, has
indicated that the effective sales ta' rates are lower than the effective $A% rates, since many
goods and services had lower rates under the sales ta' (7AA9) %he replacement of the sales
ta' in +hana !y the $A% was perceived to have increased the ta' payment !urden for the
average household %he study has further revealed that the sales ta' was more progressive
2
02
than the $A% (.uno* and Cho, 7AA9O "n sum, this is true !ecause the $A% has fewer
e'empt items, and these items are not disproportionately purchased !y the year %he $A% is
more efficient, !ut it does shift some of the relative !urden of the ta' on the poor %he other
pro!lem commonly o!served is that some of the ta'payers refuse to honor their de!t
o!ligations to the $A% service while others su!mit their $A% returns without payments
%here is also deli!erate su!mission of nil returns, nonBissuance of $A% invoices and
entertainment providers and lotto operators refuse to use the $A% coupons
%he pro!lems of introducing a $A% depend in large measure on whether the country has had
previous e'perience with general sales ta'es, the nature of the ta'es that the $A% will
replace, the effectiveness of the ta' administration, the lead in time and the structural features
of the $A% (rates, e'emptions and treatment of small ta' payers)
Administrative considerations have greatly influenced the structure of the $A% in +hana
Because a singleBrate $A% is easier to administer than a multiple rate $A%, the former has
!een applied %he comple'ity of administering full e'emptions (*eroBrating) has led to restrict
them to e'ports Small ta'payers have !een dealt with !y e'empting those with gross sales
!elow a certain threshold or !y ta'ing them under a simplified system Because of the
difficulty involved in ta'ing service, the $A% is imposed on selected services only
"nsufficiency of resources leads administrators to concentrate their enforcement efforts on
large ta'payers, which can encourage nonBcompliance among other ta'payers
2.14 PROSPECTS OF VAT IN GHANA
%he government has em!arked upon major ta' reform program after the #conomic @ecovery
1rogramme that will have a su!stantial impact on the economy of the country %he
introduction of $A% has !een a major part of the ta' reform program since 6??? to replace a
num!er of nonBperforming ta'es especially the sales ta' $A% after reintroduction has !een a
major talking issue in recent times !y the !usiness community, writers, the government and
other mem!ers of the society due to the impressive performances it has demonstrated .any
advantages have !een attri!uted to the system 3ew among the lot were&
2.14.1 Strengthening the System of Collecting Taxes
"n spite of the high cost associated with $A%, administratively it is reali*ed that $A% offers a
simpler form of ta' collection $A% !y nature aids ta' enforcement !y providing audit trail
2
12
through different stages of production and trade Under the $A% system the ta' paid !y
registered firms on purchases and e'penses (input ta') can !e deducted from the ta' charged
on sales (output ta') /owever this deduction can only !e done if the !usiness is registered
and can produce an invoice showing that it paid the $A% hence !usinesses making regular
purchases will insist on getting an invoice to ena!le them take the input ta' credit %hus, it
acts as a self B policing mechanism
2.14.2 Promotion of Exports
%he operation of $A% allows e'ports from country of origin to !e *ero rated By implication
$A% on e'ports are re!utted whereas $A% is charged on import from other countries %he
effect of this is that e'port commodities from $A% practicing countries are cheaper compared
to similar goods from nonBpracticing countries $A% particularly improves e'port
competitiveness of local industries due to theN*ero ratingN of e'ports
=n the other hand, $A% is charged on imports from other countries and causes the cost of
such products to !e higher %his acts as a disincentive for imports from nonB$A% practicing
countries As a result, such countries react to the situation !y putting in place measures to
neutrali*e the effects which may not auger well for international trade though
2.14.3 Spreading the Burden of Tax in a Fairer Way
Adam Smith in his !ook DWealth of 0ationsN propounded that one of the principal canons of
ta'ation is that of equity which seek to treat all ta' payers fairly $A% encompasses a system
of implementation of a uniform ta'ation which is spread over a wider !ase than what prevails
under sales and service ta' systems %his means that ta'payers will not !e treated differently
.ost ta' systems (eg 1ersonal income ta' and import duty) are deli!erately designed to
make high income earners pay a higher rate of ta' %his is not the case with the sales and
service ta' regimes which e'cludes most e'pensive services such video rental,
telecommunication etc from the ta' regime making the system rather harsh and inequita!le to
those paying ta' on less e'pensive goods hence the need for an effective e'penditure ta' to
cover many goods and services to make it fair to all ta'payers
1revious discussions have clearly indicated that with efficient administration and
commitment, there is a !right prospect for effective implementation of $A% in +hana "n
developing nations, the $A% has tended to !e something of a money machine "t has !een
2
22
found out that in Argentina, Chile, Costa @ica, 2orea and "ndonesia, for e'ample, the ratio of
revenue to +D1 grew !y at least :A percent within the first three years of the $A%Ns adoption,
compared with revenue from the indirect ta'es replaced !y the $A% %his is a clear indication
that +hana can implement the ta' with minimal risk of revenue loss and with some
e'pectations of fairly strong revenue growth
%he $A% ta'es each stage of value added only once, at the stage where it is added %he
$A%Ns neutrality in so far as production efficiency is concerned is that it ta'es productive
inputs equally and does not promote distortion of production choices %he consumption type
of $A% does not distort the choice !etween consuming now and consuming later, in favor of
the former, as does the income ta' %his means the $A% does not penali*e, as does the
income ta', capital accumulation and economic growth
$A% like other revenue mo!ili*ation system relies greatly on proper and effective accounting
records kept !y operators %his feature if missing may render the operation of the $A% far
from success Seasoned ta' and economic e'perts such as Seth %erkper and 0ii .oi
%hompson have spoken strongly against the low revenue generation of the $A% service and
the potential of the service to generate huge revenues for the state @ecords keeping of the
stakeholders have !een poor and nothing to write home a!out as it is discussed all over the
country %his study sought to investigate all these challenges to prove them or otherwise
2
3
CHAPTER THREE
RESEARCH METHODOLOGY
3.1 INTRODUCTION
%his chapter e'amines the research methodologies that will !e used for the research work
%hus, research methodology involves the procedures followed in reali*ing the goals and
o!jectives of the research study "t concentrates on the various methods used in collecting the
necessary data for the purpose of the study
"n conducting research, there is the need to gather and collect data !y using various tools with
the aim of analy*ing them into usea!le information for decision making
"t gives enlightenment into how the data gathering instruments were designed, administered
and the various methods employed for the data analysis %his chapter also defines the sample
si*e of the study as well as the varia!les that are used to analy*e the data collected
3.2 DEFINITION OF VARIABLES.
%he varia!les considered were the challenges and prospects inherent in the operation and
administration of $A% in +hana %his definition is triggered !y the fact that $A% has !een
the !ane of many developing economies for that matter +hana
"t is now one of the necessary fulcrum and prospect to sustain it for development %he $A%
service, which is entrusted !y law with the mandate of administering, was used as a case
study to elicit the efficiency and the effectiveness in their administration of ta' in +hana
3.3 SOURCES OF DATA
%wo sources of data collection used for gathering the necessary information that is needed for
effective writing of this research work %hese sources were the primary and the secondary
data
2
42
3.3.1 Sources of Primary Data.
%he primary data was taken from&
i 1ersonnel at the local $A% offices (4$=s) B 2umasi
ii Consumers
iii Agents (@etailers, Wholesalers, .anufactures and Service providers)
3.3.2 Sources of Secondary Data.
%he secondary data was taken from various sources such as&
i 4i!rary materials
ii "nternet (search engines and we!sites)
iii Brochures on $A%
iv %he $A% act, :8; of 6??>
v Articles and pu!lications on $A%
3.4 DATA COLLECTION
3.4.1 The Primary Data.
%his was collected using self administered questionnaire and interviews to o!tain first hand
information on how the $A% system is operated in +hana
3.4.2 Preparation of Questionnaire
%he questionnaire to solicit inputs on the varia!les e'amined to gather peopleJs perception on
the ta' system %he population consisted of two main identifia!le groups thus producers of
goods and services, consumers and the regional $A% office
3.4.3 Interview
%he management team from the regional office in 2umasi was interviewed to ascertain their
views on the administration of $A% =fficials from the $A% service were also interviewed to
know the trends regarding $A% administration through a written interview guide
3.4.4 Data Gathering Instruments and Questionnaire Administration.
%he questionnaire was used in gathering data for the study %hree questionnaires were
designed to solicit the views of&
i %he consumers
ii =perators( @etailers, Wholesalers, .anufacturers and Service providers) and
2
52
iii %he regional $A% office in 2umasi on the key issues raised in the questionnaire
3.4.5 Secondary data
%he secondary data was o!tained from te't!ooks, !usiness journal, !rochures, internet, and
pu!lications newsletters which were relevant to the study
3.5 SAMPLE POPULATION
A sample si*e of 6:A was selected- convenience sampling method was adopted to select
respondents %he research was limited to the Central Business District the 2umasi .etropolis
in the Ashanti @egion of +hana- the target population comprises the following&
i %he $A% Service
ii Agents
iii .anufacturing
iv Distri!utors and wholesalers
v Consumers of all kinds of $A% rated goods and services within the 2umasi
.etropolis
3.5.1 Sampling Size
%he sample si*e is 6:A to determine the num!er of respondents to !e surveyed %he whole
population could not !e covered, a sample si*e comprising of-
i %he $A% Service 1ersonnel 6A
ii Service providers 7:
iii .anufacturing 6:
iv Distri!utors and Wholesalers 9A
v Consumers <A
3.6 DATA ANALYSIS PROCEDURE
"nformation o!tained from the questionnaire was initially classified according to the various
sections for analysis which was su!sequently regrouped into definite categories %hese
categories were then tallied manually and computed into percentages
%he responses from the questionnaires were discussed and comparisons were made to come
out with suggestions, illustrations were also applied where the data analy*ed involved figures
and charts
2
62
CHAPTER FOUR
DATA ANALYSIS, FINDINGS AND DISCUSSIONS
4.1 INTRODUCTION
%his chapter focuses on the analyses of data collected from the field !y the researchers %he
data analyses are !ased on the research questions administered and interviews conducted
Any ta' system can only !e properly monitored and controlled if all the parties involved that
is consumers, clients, agents and the $A% services play their respective roles effectively to
ensure that the aims and o!jectives for which the $A% service was esta!lished could !e
achieved
4.2 ANALYSIS OF DATA FROM COMSUMERS/CLIENTS OF VAT.
"t is imperative for consumers to understand how the ta' system operates and appreciate the
reasons why ta'es are imposed !y government in the first place %his is e'pected to !e
achieved through education of the general populace !y the $A% service, through the media,
$A% seminars, flyers and speeches %his was reflected in the data gathered which shows that
majority of the respondents indicated the media as the most effective means through which
they acquired knowledge of $A% 3igure 6 shows the various categories of occupation
represented within the sample si*e %he largest num!er of respondent fall within government
institutions while less than 9A people !elonging to other areas of employment
OCCUPATION
60
50
40
30
20
10
0
FIG. 1
HOW DID YOU GET TO KNOW VAT?
%he researchers asked the respondents how they got to know of the $A% and the operations
of the $A% service
20
18
16
14
FREQUENCY
12
10
8
6
4
2
0
FIG 2
3rom the diagram, majority of the respondents said they o!tained much information a!out
$A% from the media followed !y those who attend seminars %hough there seem to !e a lot
of dissemination of information through the media, there are still some lapses, since the
education has not yielded the desired results %his is evident in the fact that most consumers
claimed to have heard a!out $A% yet do not know how it operates
%he researchers asked the respondents whether they !elieve it is important to insist on seeing
a vat registered certificate !efore vat is chargedG
According to the data collected, <>I of the respondents did not know that they had to insist
on $A% certificate !efore they can !e charged $A% =nly 77I were educated enough to
know that they have insist on $A% registration !efore they can !e charged $A%
%he diagram !elow is the evidence of the a!ove situation
DO YOU BELIEVE IT IS IMPORTANT TO INSIST ON SEEING A VAT
REGISTERED CERTIFICATE BEFORE VAT IS CHARGED?
90
80
70
60
50
40
78
30
20
10
22
0
YES NO
FIG. 3
%o ascertain the truth or otherwise of the a!ove situation, the researchers asked further
questions on whether the consumers have an idea of how much they were paying for $A%G
%he evidence was that >:I of the respondents do not even know the $A% rate that is charged
!y the $A% service as the chat !elow depicts
DO YOU KNOW HOW MUCH TO PAY ON EVERY SERVICE OR PRODUCT
UNDER VAT?
90
80
70
60
50
40
85
30
20
10
15
0
YES NO
FIG. 4
2
92
%he survey shows the e'tent of ignorance on the part of consumers on how the $A% system
operates as most do not know how or when $A% is charged %he diagram a!ove shows of
how inefficient education on $A% has !een since its implementation %his can !e attri!uted
to the fact that many consumers are unaware of which supplies attract $A%, who is supposed
to charge $A% and do not even know that they have the right to insist on a genuine $A%
invoice or receipt when they make a purchase A further question posed during the interview
of some of the consumers indicated clearly that most of the consumers have no idea how the
$A% is to !e computed
%he challenge this poses to the $A% service are instances where $A% agents charge $A% on
e'empt or *ero rated supplies %he pro!lem is further compounded when the $A% agents do
not issue $A% invoices or receipts there!y causing loss of revenue to the state
Another interview question sought to find out whether $A% should !e charged on every item
in order to find out the level of education gone to the consumers Almost all the respondents
said they wanted $A% to !e charged only on few selected items %his is an indication that
most people do not want to pay ta' and more so do not know what the money is used for
4.3 ANALYSIS OF DATA FROM VAT AGENTS
%he 2umasi metropolis has seen a diverse range of !usiness sectors over the years %he
!usiness environment is !asically made up of mainly retail, manufacturing, wholesale and
service industries %he majority of the !usinesses is concentrated at the retailing industry
which consists of 8:I of the total market whereas manufacturing, wholesaling and service
industries only constitute 6AI, 69I and 97I respectively of the entire sector Based on the
figure !elow, our analysis would !e mainly focused on the retail industry
BUSINESS SECTOR
10%
13
%
45
%
32.00
%
SERVICES
RETAILIN
!ANUFACTURI
N
"#OLESALIN
3
03
FIG.5
3
03
4.3.1 Flat Rate Scheme and the Retailers
%he $alue Added %a' (Amendment) Act, 7AA< (Act) <98) introduced a flat rate scheme that
will facilitate $A% collection in the informal retail distri!ution trader sector %he Act is to the
effect that unless otherwise directed !y the Commissioner for $A% in writing %his means
that a ta'a!le person who is a retailer of goods shall account for the
paya!le at a flat rate of 9I calculated on the ta'a!le supply
$alue Added %a'
%hus $at 3lat @ate Scheme
operators will charge $alue Added %a' and 0ational /ealth
"nsurance 4evy ($A%D0/"4) on their ta'a!le supplies at a marginal rate of 9I of the value
of the supplies %he marginal rate of 9I represents the Peffective rateQ of ta' on supplies that
gives rise to net ta' paya!le on application of the inputBout mechanism of $A% %his scheme
applies to retailers who fall !elow the threshold of +/H ?A,AAAAA hence all retailers whose
annual turnover go a!ove this threshold would have to charge the 67:I $alue Added %a'
and 7:I 0ational /ealth "nsurance 4evy
4.3.2 Vat Registration
%he introduction of this flat rate from 7AA; has also seen some challenges from the retail
industry .ost agents on $A% do not necessarily charge the rate on their supplies either due
to their refusal to register for the proposed flat rate scheme or they have simply not registered
their !usiness !ecause of fear of paying ta'es
VAT REGISTRATION
5%
65%
30
%
REISTERE$
NOT
REISTERE$
NOT SURE
FIG. 6
3
13
%he survey conducted !y the researcherJs shows that most retail agents in the 2umasi
metropolis have not registered for the $A% certificate 3rom the diagram a!ove a!out ;:I
have not registered for $A% while 9AI have registered for and are charging $A% %he
remaining :I have no education on how relevant the registration is to them and the nation
Some !usinesses are e'empted from charging $A% !ecause of the nature of their !usiness for
instance !eing a donor project or charity %he nature of their !usiness does not require that
they use their revenue to finance ta' lest the government would have to refund it !ack to the
organisation !ecause if they are charged $A% the government would have finance it Under
these circumstances the application of the $A% relief purchase order ($@1=) is used !y
e'empt !usiness in the course if their normal purchase of supplies in order to !e relieved of
the ta' !urden
4.3.3 Record Keeping
%he $A% systems operate such that the collection of ta' is done !y agents %hus the records
kept !y these operators should !e very accurate and the system must run smoothly and
efficiently to ena!le the $A% service to ascertain the true revenue each agent makes$A% is
!ased on a system of self assessment under which registered persons make their own
declaration of the ta' period each month Control and enforcement of compliance under
$A%, therefore depends on records kept !y the registered !usinesses acting as agents of the
ta' authorities #very person lia!le to ta' under the Act is required to keep-
i @ecords and accounts of all ta'a!le goods and services received or supplied in the
course of the !usiness including *ero R rated supplies
ii @ecords of e'empt supplies made or received
iii A summary of the totals of input and out ta' for each calendar month
%he a!sence of these records can negatively affect the generation and collection of revenue "t
was o!served that the accounting records kept !y the registered agents are largely properly
kept !y most !usinesses %his aid in revealing e'actly how much input or output ta' accrues
to either the agent or the $A% service %he perception !y the +hanaian populace that proper
records are not !eing properly kept is limited to the small scale retailers %he ne't chart
shows how the agents have fared during the time of the research (1erhaps, it still shows that
there is light at the end of the tunnel since the manufacturing, wholesalers and retailers on the
large scale have shown an ama*ing improvement in record keeping
3
23
WHICH OF THE FOLLOWING BOOKS DO YOU KEEP?
60
50
40
30
20
10
0
FIG. 7
Although the data a!ove depicts a favoura!le picture how records are kept !y agents, it still
shows some grey areas .ost of the retailers confess to keeping accounting records yet do not
know what their annual turnover is When asked a!out how much their turnover was, most
answered they did not know which goes to confirm that these !usinesses deli!erately conceal
their turnover for the purposes of not paying the appropriate ta' to the state
.ost traders when qui**ed on whether they insist on $A% invoices when they make
purchases responded in the affirmative, however this assertion was flawed when asked when
asked which of the two methods they consider as their cost price on the $A% A large num!er
of respondents said their cost was on materials and services whereas few claimed that it was
on cost, materials and input cost incurred in arriving at the cost of sales %he $A% input ta'
should not !e considered as part of the input in the computation of the $A% As shown !y the
graph !elow most respondents were of the conviction that $A% has increased the cost during
!usiness this is why most !usiness feels that $A% affects the prices of their supplies
3
33
HOW DOES VAT AFFECT YOU?
90
80
70
60
50
40
84
30
20
10
0
7
FIG. 8
Due to this mentality, traders who though are not qualified to charge $A%, !ut have paid
$A% on their supplies tend to include $A% in their selling prices, cause an increase in the
general prices of commodities and eventually price hikes %his implies that, the $A%
registered person charges on the cost of its supplies !efore adding profit hence making their
commodities more e'pensive than a nonBregistered agent %his creates an unfavoura!le
competition !etween !usinesses of the same industry since the rational consumer would
normally purchase goods at lower prices
4.4 DATA ANALYSIS OF THE VAT SERVICE.
%he pivot around which the entire $A% system operates depends solely on the $A% service
%his implies that the service has to !e Pa pillarQ on which others (ie the agents and
consumers) would rely on for support %he research carried out revealed the service is
deficient in certain areas of their operation which makes it a thing of concern Some of the
issues that could !e addressed are discussed !elow
4.4.1 Logistics.
4ogistics can !e said to mean having the right thing, at the right place, at the right time %he
ever present motion !y the +hanaian populace is that most government institutions lack
3
43
needed logistics in aiding their duties %his was confirmed through this research that the $A%
service is no e'ception %hough there is a computerised data!ase of all registered !usiness,
there is a challenge with incorporating "C% in the collection of revenue %he reason for this is
!ecause of the nonBavaila!ility of computers and intranet networks within the service "n the
a!sence of this, the only solution for this is to manually coordinate revenue collection With
this deficiency, the service personnel were qui**ed on how ta'es due to the service are
monitored As e'pected, there are indeed software packages availa!le !ut limited to just a
fraction of the services
%here is a pro!lem of vehicles transportation of $A% officials in the collection of revenue
during a normal working day since only one or two vehicles are used for almost all the
operation of the service, thus some $A% official are e'pected to work through their own
means With the large num!er of agents, it is any!odyJs guess how many would !e visited
within the period
%his e'plains why, the education on $A% to the general pu!lic has not !een very effective
!ecause the necessary resources are simply not availa!le
4.4.2 Personnel
%hese are the la!our force that ensures that the overall corporate aims and o!jectives of the
$A% service are achieved 3rom !asic economics, la!our as part of the factors of production
has salary as its reward %he issue with respect to the $A% service is the fact that the
employees of the $A% service are not adequately remunerated and su!sequently fringe
!enefits are woefully inadequate
"t is a well known fact that motivation is the force that can ena!le the staff to put in their !est,
yet the opposite is the case %his research has identified the reason why la!our turnover from
7AA; to 7AA? in the $A% service is on the increase Some of the reasons cited through the
questionnaire they answered show that their salaries is nothing to write home a!out and their
general welfare has not !een addressed Another reason why some of the employees leave the
service is to take on new and challenging roles which can reward !etter than their present jo!
with the $A% service
3
53
4.4.3 Accounts/Returns
%he $A% service may have its personal challenges, !ut it is also aggravated !y the agents
with whom they should !e working hand in hand 1ro!lems normally arise from some of their
agents not having permanent places of !usiness and their level of illiteracy compound the
pro!lem %here are sometimes numerous mistake and omissions in the computations of the
ta'es due =thers simply would not adhere to the compliance of ta' regulations %he service
has on some occasion used distress actions, penalties and court orders to sanction some
agents who fail to comply with the ta' laws
@ecords that are kept !y the agents pose serious challenges to the $A% services .ost of the
respondents who were asked a!out what pro!lems they encounter in auditing the records of
clients indicated that some !usinesses do not have records at all and there is lack of
cooperation on the part of traders =ther $A% officialsJ recounted instances where some of
the records were falsified and some declaration were a!solutely wrong %his was also
reflected in the data collected from operators when most of them claimed to have kept the
requisite !ooks !y the standards of $A% !ut failed to state their turnover levels which
presents an a!surdity in the information they provided
"t was also o!served that traders do not produce the needed records during field operations
%hey also do not keep the necessary documents and records as required !y the $A% act to
support the assertions they make %raders in their !id to conceal wrong doings and take cover
as well try all means possi!le to !ri!e officers who sometimes find themselves in on very
helpless positions
#ven though section 7? of the $A% Act 6??>, Act :8; and the $A% @egulation, 4" 6:8; set
out standards on the records to !e kept !y traders, the calls from legal provisions seem to !e
consistently !reached in their quest to ma'imi*e revenue at the e'pense of the state revenue
machines
%he growth of national development depends largely on the how effective the system
operates to aid in the collection of revenue to the governmentAccording to CS" +lo!al
#ducation, there are some limitations to fiscal policyNs effectiveness 3irst of all, it takes time
to get approval for ta' legislation Secondly, it takes time for the ta' policies to affect the
economy after they have !een implemented
3
63
4.5 EFFECTS OF TAXES ON CONSUMERS
When the government changes its ta'ation policies, it changes the spending power of
individuals "f ta'es are increased, prices of goods increase hence consumers tend to spend
less When people decide to spend less, !usinesses do not make as much profit and start to
cut !ack on their !usiness operations As individuals see these !usiness cut!acks, they spend
even less and the economy starts to decline /owever, if the government lowers ta'es, prices
!ecome relatively lower which encourages them to spend When individuals start spending,
!usinesses earn more profits and have money to e'pand %his causes !usinesses that are not
yet registered to get their !usiness registered which would result in an increase in their level
of sales that would enhance the economy to grow With lower prices, people continue to
spend and this fuels economic growth
The Growth of VAT with GDP in Ghana 2006-2010.
%a!le 7
YEAR/VARIAB
LES
2006 2007 2008 2009 2010
Domestic VAT 799,7>8,7?:
;A
99<,A6?,>:9
88
8A<,:<8,>6:
<;
:A>,A89,:98
?;
;>A,:?7,88<
6<
Excise <8,<7;,;?:
:>
;7,66A,A<7
7?
:>,:?7,>7>
9A
:;,?6<,;A<
:6
66?,68<,A<6
>6
Comm. Serv.
Tax
97,A>?,999
<:
><,8;A,868
?;
67>,<9:,?<8
<:
NHIL 8;,<;8,8:?
?A
;<,999,?:<
;6
>6,:8>,7;?
7:
6A6,;A>,<A<
A6
69;,66>,8>?
89
TOTAL VAT 9:8,<<:,8:6
A<
8;;,8;9,>>9
98
:<?,>A:,78<
A;
<:8,A9A,7;8
88
6,A;8,:?9,?>
96;
Source: VAT service
3
7
CHAPTER FIVE
SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION
5.1 SUMMARY OF FINDINGS
%he $alue Added %a' was reBintroduced in +hana as a via!le alternative to provide an
efficient and effective indirect ta' administration in the country 3or a ta' to !e properly
administered, it must !e equita!le "t is for this reason that policy makers in the country
introduced the 9I flat rate scheme for retailers not e'ceeding +/C?A, AAAAA and those
retailers whose revenue e'ceed that amount are to charge the 6:I rate
%he $alue Added %a' is also !ased on voluntary compliance where agents are to collect the
ta', conduct their own assessment make onward payment to the ta' office %his is in contrast
to the sales ta' where much of the assessment was conducted !y ta' administrators %his also
makes the $A% cost effective
%he implementation of $A% requires a highly literate populace, who are aware of what $A%
is and how the system operates %his would ena!le !oth consumers and sellers provide an
effective mechanism for checking fraudulent activities since they all know how the system
operates
"t is the o!ligation of $A% officers to ensure that agents keep the appropriate and adequate
records for proper reporting and filling of returns %he $at officers would need these records
to confirm and verify the ta' due
According to the data collected, <>I of the respondents did not know that they had to insist
on $A% certificate !efore they can !e charged $A% =nly 77I were educated enough to
know that they have insist on $A% registration !efore they can !e charged $A%
%he survey also showed the e'tent of ignorance on the part of consumers on how the $A%
system operates most (>:) do not know how or when $A% is charged
3
83
%he survey conducted !y the researcherJs showed that most retail agents in the 2umasi
metropolis have not registered for the $A% certificate 3rom the survey a!out ;:I have not
registered for $A% while 9AI have registered for and are charging $A%
.oreover, it was discovered that ta' officials face many pro!lems in the office %hese
pro!lems have !een stated as&
i 4ack of logistics or resource
ii 4ack of good or conducive environment
iii %oo many manual work
iv "nadequate computeri*ed system
Again ta' officials stated the following as pro!lems they face in the field
i "nadequate vehicles to move around
ii @eluctance of ta'payers to pay their ta'es
iii "nterference from politicians and other influential people in the society
iv #vasion of ta'
v 4ack of coBoperation from ta'payers
vi Disrespect from politicians and
vii 4ack of awareness or knowledge of ta'
Apart from the pro!lems stated a!ove, ta' officials during the study also stated other
pro!lems that affect them as&
i 4ow morale
ii 4ack of motivation
iii 4ack of sufficient training or refresher course for staff
iv 4ittle or no recognition of ta' officialsJ role in the development of the nation
v 4oopholes in ta' laws and
vi 4ack of enforcement of the ta' laws
According to the study, ta' officials face these pro!lems daily and this was made known !y
all the 6AAI respondents of the questionnaire to staff
3rom the study, ta' officials who have !een encountering pro!lem associated with collection
of ta' have made the following suggestions which they !elieve they would help eliminate or
lessen the pro!lems they face %he suggestion included&
3
93
i "mprovement of condition of service of ta' officials
ii "nstitution of adequate and frequent training or refresher courses for ta' officials
iii 3requent, adequate and effective ta' education
iv 1rovision of the necessary logistics and resources for ta' officials to work with
v "nstitution of measures to stop political interference with the work of ta' officials and
vi Strict enforcement of the ta' laws
%he ta'payers went further to state the pro!lems they encounter, which included the
following&
i %oo many and comple' ta' procedures
ii 4ittle ta' education
iii Corrupt and distrustful ta' officials
iv 4ittle or no development from ta'es and
v /igh ta' assessment
According to the study, <<I of the ta'payers said these pro!lems influence their decision to
pay or not to pay ta' %hey however !elieve that the pro!lems could !e done away with or
reduced if the following suggestions are implemented
i %a' payment should !e made simple
ii Corrupt and distrustful ta' officials should !e dealt with very well
iii %a' assessment should not !e too high
iv Development from ta'es should !e improved and make known to the pu!lic
v %here should !e frequent, adequate and effective ta' education
5.2 CONCLUSION
%he general conclusion drawn from the study with particular reference to chapter 7, 8 and the
research questionnaire included the following
"t could !e concluded that there are actually pro!lems that are associated with collection of
ta' 3urther conclusion could !e drawn that $A% service also encounters pro!lems associated
with collection of ta'
"t is the com!ination of these that form the pro!lems associated with the collection of $A% in
the country
4
04
"n addition, it could !e concluded that the pro!lems enlisted are similar to pro!lems that have
!een unearth through research work in other places
.oreover, it could !e concluded that, lack of logistics and resource& lack of motivation, lack
of frequent and adequate training for ta' officials, political references, lack of strict
enforcement of ta' laws and lack of adequate and frequent ta' education among others are
the pro!lems associated with collection of $A% in +hana and in many other ta' agencies in
the world as a whole
Apart from the a!ove, further conclusion could !e drawn that measures such as&
"mprovement of conditions of service of ta' officials- institution of frequent and adequate
training for ta' officials- frequent, adequate, and effective ta' education- provision of
necessary logistics and resource- institution of measures to stop political interferences- and
enforcement of ta' laws would help eliminate or lessen the pro!lems associated with
collection of ta'
$A% has achieved some success as compared to the sales and service ta' which it replaced
5.3 RECOMMENDATION
5.3.1 Education
%he $A% service should ensure that the general pu!lic is aware of how important $A% is to
the economy, how much $A% is paid on every item purchased, who should charge $A% and
the insistence on seeing a $at certificate %he education should also include goods and
services that are e'empted from $A% and the reasons for !etter understanding of how the
system works 3irms and organi*ations that qualified to register for $A% !ut have not done
so should !e given adequate tutorials especially on issues such as $A% not affecting their
profit margin and can even serve as short term finance
5.3.2 Training of Staff
Staff may !e qualified for the jo! alright- further training should !e given them so that in
pursuance of their duties, only relevant and adequate information would !e sort for Where
there are human resource deficiencies, measures should !e taken to acquire adequate staffs
%he research and monitoring department must also ensure that officers are updated on new
ways of verifying accounts and coming out with the total $A% due @egular training and
4
14
retraining of $A% officers would ensure that agents that are conducting their operations in
unaccepta!le ways are corrected %his would also reduce the risk of losing revenue
5.3.3 Motivation of Agents and Staff
3or the service to meet its target there is the need for it to motivate staff in terms of salary,
career development, !enefits and other conditions of service Well motivated staff will call
for an efficient way of generating revenue for the state
"tinerant officers who occasionally visit the premises of registered persons to e'amine and
verify their records would also avoid indulging in corrupt practices that would also affect the
revenue to !e generated %he staff should also !e developed to achieve selfBesteem, honesty,
integrity, transparency, pro!ity and accounta!ility in the performance of their duties as
professionals in accordance with the rules and regulations
Agents should also !e motivated !y providing incentive packages such as souvenirs,
commission reward or award recognition
5.3.4 Compliance
$A% is !ased on a system of self assessment under which registered persons make their own
declaration of the ta' period of one month, !ut enforcement of compliance !y $A%
authorities is !acked !y law and therefore makes a greater impact in the achievement of its
o!jectives $oluntary compliance to ta' laws or system is where agents would willingly keep
proper records, file regular returns which are accurate and relia!le as far as practica!le %hus
if this attitude is cultivated !y agents, they would comply with sections of the law that are
favoura!le to them
5.3.5 Effective Monitoring and Control of the Vat System
"t is also recommended that the operations of agents are frequently monitored to ensure that
things are done the right way %his would minimi*e the risk of losing revenue due %he
internal control systems in the service should also !e strengthened to include !etter
supervision to ensure staffs perform their duties efficiently and effectively
4
24
5.3.6 Effective Communication
%he service should intensify communication to traders specifying issues that relate to their
right and responsi!ility under the ta' law %his would give them the confidence needed to
charge $A% %his would also serve as an intervention to overcome the tendency of corrupt
practices
4
34
BIBLIOGRAPHY
Appiadjei A# (7AA?B7A6A) %a'ing income or ta'ing consumption (4ecture 0ote on %a'ation
p<8, Christian Service University College, Dept of !usiness admin(Accounting op)
Bahitia, / 4(7AA7D7AA9),QAfrican #conomic outlook, pu!lic 3inanceQ$ikas pu!lishing 6?
th
ed 6??>
Daily +raphic Kuly, ;, < 5 ? August, 7AA:- #nquirer, %hursday, 68B6< Kuly 7AA: ed n,
Daily +raphic Kuly, ;, < 5 ? August, 7AA:- #nquirer, %hursday, 68B6< Kuly 7AA: ed n, The
mode of computing VAT.
Daily +raphic,(Kuly <, 7AA:, %he 4ens, Kuly ;, 7AA:) e'tensive evasion, overB*ealous and
corrupt ta' officials
+illis .alcolm (Kune 6??A)Q$alue Added %a'ation "n Developing CountriesQ A World Bank
Symposium World Bank
Improper filling of VAT Returns Reported
.etro %$ (7AA;), Argued on Good evening Ghana that the VAT service is operating far
below 2! of its capacity. +uest& .oi 0ii %hompson
.uno*, Sonia and Stanley SangBWook Cho (0ov7AA9),QSocial "mpact of a %a' @eform& the
case of #thiopiaQ".3 Working 1aper W1DA9D797
=tieku, (6?>>) Difficulty to Calculate the Base for an "ncome %a',
1urhoit,.ahesh C,Q$alue Added %a'& %he 0eed of the 0ew .illenniumQ( wwwstv a t c o m)
@iswold, S(7AA9),Q$alue Added %a' in Su! Saharan Africa& A Critique of ".3 $A%
policyQ University of 4ondon
4
44
%an*i, $ito and /owell L,Qta' policy for developing countriesQ( w wwim f o r g )
%otal %a' @evenue in @elation to +D1 for the year 7A6A (Source& 7A66 Budget, section ;?)
%erkper Seth,(Kune 6??;),Q$A% in +hana& Why it failedQ,67 %a' notes "nternational p 79
$alue Added %a' (Amendment) Act, 7AA< (Act <98)
4
54
APPENDIX
RESEARCH QUESTIONNAIRE FOR CONSUMERS
@#S#A@C/ %=1"C& A S%UDE =3 %/# C/A44#0+#S A0D 1@=S1#C%S =3 %/#
$A% S#@$"C# "0 +/A0A (A CAS# S%UDE =3 %/# 2U.AS" .#%@=1=4"S)
1U@1=S#& %/"S "S A0 ACAD#."C W=@2 "0 1A@%"A4 3U43"4.#0% =3 %/#
@#CU"@#.#0% 3=@ %/# AWA@D =3 A D#+@## "0 BAC/#4=@ =3 BUS"0#SS
AD."0"S%@A%"=0
W# W=U4D B# .=S% +@A%#3U4 "3 %/# @#CU"@#D "03=@.A%"=0 W"%/
@#+A@D %= %/"S CU#S%"=00A"@# "S 1@=$"D#D %/A02 E=U "0 AD$A0C#
Please tick where applicable or necessary.
C6 Se'
.ale
3emale
C 7 4evel of education
Below =rdinary 4evel
=rdinary 4evelDSSSC#
Advanced 4evel
1rofessional Certificate
University 4evel and a!ove
C 9 Age group
6> B 7A
4
64
76 B 9A
96 B :A
:6 and a!ove
C 8 =ccupation
Self employed
+overnment employee
1rivate Sector employee
Unemployed
C: /ave you heard a!out $A%G
Ees
0o
C; "f your answer to C: is E#S /ow did you know a!out the $A% systemG
(14#AS# %"C2 A44 %/A% A114E)
%hrough $A% Seminars
%hrough the media (@adio, %$, 0ewspapers)
%hrough !usiness associates
%hrough reading the $A% !rochures
"nternet
C< Do you know how the $A% system operatesG
Ees
0o
C> Do you know how much to pay on every service or products under the $A% systemG
Ees
4
74
0o
C ? Do you think $A% could !e charged !y every traderG
Ees
0o
C6A Do you !elieve it is important to insist on seeing a $A% @egistered Certificate !efore
$A% is chargedG
Ees
0o
C66 Do you think that $A% should !e charged on all suppliesG
Ees
0o
C67 What is the reason(s) for your answer in C66 a!oveG
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
C" 9 Do you think it is important to insist on invoice anytime you pay $A%G
Ees
0o
C" 8(i)"f 0=, whyG
Because Seller does not have invoiceDreceipt
"t makes no difference since price remain the same
Do not want to incur sellerNs wrath
4
8
"
=ther(s)
(ii) "f you think other(s), specify
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
C" : /ow does $A% affect youG
"t reduces the quantity of supplies that " wish to !uy T
"t increases the prices of the supplies that " !uy
"t does not affect me
C"; Do you think $A% could lead to increase in revenue to the +overnmentG
Ees
0o
C6< Do you think $A% should !e phased outG
Ees
0o
C6> What changes would you like to see in the operation of $A%G
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
C6? /as the education on $A% !een effectiveG
Ees
4
94
0o
5
05
RESEARCH QUESTIONNAIRE FOR THE OPERATORS OF VAT REASERCH
TOPIC: A STUDY OF THE CHALLENGES AND PROSPECTS OF THE VAT
SERVICE IN GHANA (A CASE STUDY OF THE KUMASI METROPOLIS)
PURPOSE: %his is an academic work in partial fulfillment of the requirement for the award
of a Degree in Bachelor of Business Administration
We would !e most grateful if the required information with regards to this questionnaire is
provided %/A02 E=U "0 AD$A0C#
C6 Which !usiness sector are you involved inG
@etailing
Wholesaling
.anufacturing
Services
C7/ave you registered your !usiness with the registrar generals departmentG
Ees
0o
C9 .y Sales turnover for the year is with these ranges
4ess than +/H ?A,AAA
.ore than +/H ?A,AAA
#qual to +/H ?A,AAA
" do not know
C8Do you know a!out the $A% systemG
Ees
0o
5
15
C8(ii) "f yes, how did you know a!out the $A% systemG
(1lease tick all that apply)
Attending $A% seminarsJ
@eading $A% !ooklets
%hrough !usiness associates
"nternet
%hrough the media (%$, 0ewspapers, @adio)
=thers
1lease specify
C: (i) have you registered for $A%G
Ees
0o
C: (ii) +ive reasons for answer in :(") a!ove
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
C; (i) Do you keep accounting !ooksG
Ees
0o
C; (ii) "f no whyG
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS

5
25
C< "f E#S, which of the following !ooks do you keepG
1urchases Day Book ("nput %a')
Sales Day!ook (=utput %a')
Both
"f you keep any other(s), please specify
C> Do you think it is necessary to insist on invoiceDreceipt when you purchase inputs
goodsDservicesG
Ees
0o
What is the reason for your answer inC> a!oveG
C? Do you issue invoiceDreceipts when you sell or render services in all situationsG
Ees
0o
Sometimes
"f no or sometime, whyG
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
C6A Do you know how to calculate input D output $A%G
Ees
0o
5
35
C66 Which of the following categories of supply can you classify your goodsD servicesG
Standard rated ($A% is charged on sales and can claim $A% paid) 4K
#'empt ($A% is charged on sales and cannot claim $A% paid)
Lero rated ($A% is not charged on sales !ut can claim $A% paid)
.i'ed supplies
Do not know
C 67 Do you know how to file the $A% @eturnsG
Ees
0o
C 69 When do you file your $A% @eturnsG
Within the statutory period
Sometimes e'ceed the statutory period
%wo months after the statutory period
=ther
C68 /ave you ever defaulted in the su!mission of your $A% returnsG
Ees
0o
C6: /ave you ever !een fined !efore for not filing your returns on timeG
Ees
0o
5
45
"f yes how many timesG
C"; /ow does $A% affect your !usinessG
"ncrease my profit
Decrease my profit
Does not affect me
C"< (i) Does $A% affect the prices of goodsDservices you offeredG
Ees
0o
(ii) "f E#S, howG
"ncrease in prices
Decrease in prices
C" > .ention some pro!lems you encounter in the compilation of the $A% records
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
C6? Do you receive any assistance from the $A% personnel in the compilation of your
recordsG
Ees
0o
C7ADo you think $A% will increase government revenueG
Ees
0o
5
55
C76 Do you think $A% should !e phased outG
Ees
0o
C77 "f 0=, what changes do you e'pect to see in the operation of $A%G
Decreased
"ncrease the grace period
@educe the coverage
"ncrease the rate charged
C79 "s the mode of education on $A% effectiveG
Ees
0o
5
6
INTERVIEW GUIDE FOR VAT SERVICE
1lease, where appropriate provideDattach any availa!le relevant papers, documents or
statistical data
1#@S=00#4
6 What are some of the pro!lems that the service faces in recruiting, training and retraining
personnelG
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
7 What are the cli!re of staff the service recruit with regards to qualificationG
9 What are some of the pro!lems that the service faces when it comes to remuneration and
=ther !enefitsG
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
8 What is the la!or turnover rate (from7AA:B7A6A)
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
: Do staff provide reasons for leavingG What are some of the reasons they provideG
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
5
75
; Are there pro!lems with staff discipline (integrity) with respect to field operationsG /ow
have these issues !een looked atG
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
C= B =1#@A%"=0 3@=. +=$#@0.#0%
What has !een the coBoperation from government(s) so farG
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
"s it something to write home a!outG Are there any draw!acksG
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
=1#@A%"=0S
6 What pro!lems do you encounter in registering operatorsG
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
7 Do you have a computeri*ed data!ase on all registered !usinessesG
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
9 /ave you incorporated "C% in your revenue collectionG "f E#S, how and "f 0= whyG
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
8 /ow do you enforce compliance to with revenue collectionG
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
: What pro!lems do you face when it comes to invoicingG
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
5
85
; /ow have they !een managedG
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
< Do you have packages (software) to monitor $A% due to the serviceG
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
> What pro!lems do you encounter in auditing $A% records of clients
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
%hrough which means does the $A% service educate the general pu!lic and how effective
has it !een
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
? Are there standards set for operators in terms of !ook keepingG What pro!lems crop up in
this areaG
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
6A What pro!lems are associated with filing $A% @eturnsG
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
66 Do you have operators who owe the $A% serviceG What has !een the trend from 7AA:B
7A6A
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
What sanctions are impose on defaulting operatorsG
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
5
95
3"0A0C"0+
6 /ow do you finance your operationsG Are there pro!lems with financingG
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
7 Arc there pro!lems associated with logisticsG
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
1@=S1#C%S
6 What does the $A% service envision as a revenue collection !odyG
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
7 What are the prospects of $A% in +hanaG
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
9 @elative to other African countries, what is the position of +hana as far as $A% is
concernedG
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
8 What are the critical success factors as far as $A% administration is concernedG /ow
have these !een looked atG
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
THANK YOU