On 18 October 2024 the subcommittee on indirect tax issues presented a series of papers on VAT guidance for developing countries. The papers had been presented to the Tax Committee for comment at the previous session and were now submitted in their final form for approval.

Overview of VAT/GST in developing countries

The paper notes that the strength of the value-added tax (VAT), or Goods and Services Tax (GST) is to raise substantial tax revenues at low economic costs. The VAT is therefore one of the most important tax instruments for developing countries, which require additional tax revenues and often have difficulty collecting sufficient revenues from direct taxes. The VAT is therefore an important element in domestic revenue mobilization and is the most important revenue raiser in many developing countries. For example, in African countries the largest share of tax revenues is generally collected from the VAT.

For this reason, understanding the tax, and designing and administering the tax to be revenue productive, is essential for developing countries.

VAT/GST treatment of small enterprises

VAT compliance for small enterprises is a complex task for the tax administration. Small businesses often have limited resources and expertise to deal with the details of the VAT system and could encounter difficulties complying with VAT laws and regulations. The paper looks at the different policy options implemented by various countries to administer the VAT records and returns of small enterprises. Many countries implement a registration threshold to exclude many small businesses from the VAT system and save compliance costs.

Small businesses often make up a sizeable part of the economy of a country, and for this reason some countries include them in the VAT system. These countries would normally design VAT simplification measures to reduce the burden of VAT compliance for smaller enterprises. This is done through measures such as simplified VAT registration and compliance procedures, reduced frequency of VAT returns and the provision of user-friendly guidance on VAT compliance.

An introduction to VAT/GST refunds

VAT refunds are a legitimate part of the system, but they can be a risk for revenue collection. To mitigate this risk, a range of measures can be carried out by tax administrations to guard against VAT fraud. However, legitimate businesses making valid refund claims need to receive prompt payment of their refunds, as any delay can threaten their existence. Tax administrations need to achieve a balance between the objectives of making prompt refunds and combating fraud. The paper examines the reasons for the existence of VAT refunds and looks at factors that should be taken into account by the tax administration in administering the refunds.

The use of new technologies to improve VAT/GST

The paper on the use of new technologies looks at options available to improve the tracking of VAT data, enhance tax services, promote voluntary compliance and make use of tax data analysis to enforce compliance in a high-quality data governance environment.

The paper presents the different options for analysis by individual countries to help them design and adapt new technologies to improve VAT compliance, according to their particular needs, limitations and possibilities.