Estimation of the VAT gap in Zambia

The project aimed to estimate the value-added tax (VAT) gap, defined as the difference between the theoretical VAT liability (i.e, the amounts that could be collected given the existing VAT legislation) and what is actually collected in Zambia. This study helped evaluate the efficiency of the Zambian Revenue Authority and proposed improvements in tax legislation and administration to policymakers. Zambian VAT revenues as a share of GDP were compared to their respective values in comparable countries.

• Results show the VAT gap reduced from an estimated 3% of GDP (50% of the VAT liability) in 2009 to approximately 2% of GDP (30% of the VAT liability) between 2010 and 2011.
• Zambia VAT efficiency was revealed to be comparable to the average of other countries in sub-Saharan Africa, though it showed some volatility.
• The study recommends that action focused on combatting cash sales, preventing false invoicing, and controlling ‘fly by night’ firms be taken both to narrow the VAT gap and increase Zambian VAT efficiency beyond the average.