Revenue Performance

Chapter 6 examines the revenue performance of African VATs by calculating their collection efficiencies defined as actual VAT revenue as a fraction of potential revenue. The VAT gap consists of the policy gap (exemptions and reduced rates) and the compliance gap (evasion and lack of enforcement). Possible explanatory factors, such as the level of economic development, the VAT structure, and the effectiveness of the VAT administration, are reviewed. The analysis appears to indicate that it is unlikely that African VATs in their current form are up to the task of generating much more revenue. Further, replacement of trade taxes by VATs is not easy if VAT bases are too narrow and enforcement too shallow to put much trust in VAT’s revenue-raising capacity.