Designing and Drafting VAT Laws for Africa

This paper looks at the sources for VAT design in Africa. It begins with a brief comparison of the two alternative designs used for taxes on final consumption, the retail sales tax and the value added tax. While the VAT has emerged as the consumption tax of choice outside North America, both taxes yield the same final outcome in theory and in the course of designing a VAT, the designers may strive for the same final tax treatment as would occur under a model retail sales tax. The paper next describes how two models for VAT design have emerged – the ‘traditional VAT' and the ‘modern VAT' – and how both are used in Africa. It explains the similarities and key differences between the two models. The paper then briefly evaluates common responses to the apparent regressivity of the VAT, including the use of differential rates or exemptions. The following section of the paper reviews the process of putting VAT design into legislation. Finally, the sixth section of the paper briefly reviews six potential problem areas in the VAT