Value Added Tax in developing countries: Lessons from recent research

The Value Added Tax has become one of the most important instruments of revenue mobilisation in the developing world. A recent and growing body of research highlights its strengths and some of the challenges it faces.

Today, Value Added Taxes (VAT) exist in more than 160 countries, including in many developing countries that have modernised their tax systems in the past decades. Eighty percent of countries in sub-Saharan Africa have adopted the VAT, and it is now responsible for typically raising around one-quarter of all tax revenue. Moreover, countries continue to adapt and reform their VAT systems, sometimes substantially, such as India and Ghana did in 2017. This brief discusses lessons from several studies, which have shed new light on the strengths and weaknesses of VAT systems. It also highlights important topics that could benefit from better evidence.