An Analysis of the Value Added Tax (Vat) Gap in Zambia

Abstract

The aim of this study was to empirically examine the effect of the Zambian VAT administrationon tax revenue by analyzing the VAT gap in Zambia. The study attempted to assess from empirical evidence if there is room for the revenue authorities to enhance VAT revenue collection without increasing the rate. The data used in this study was time series data sourced from the Zambia Revenue Authority database of 2020. The research used a data collection guide that sought to collect data on VAT and any other relevant information regarding VAT gaps and VAT administration. This study used a population of the totality of the Zambian economy which included all the existent revenue streams of the Zambian government. The study employed the multiple regression model and used descriptive statistics and correlation analysis. Data collected was reviewed for a period of over 10 years (2009 to 2019).The study concludes that deferring VAT and Penalties on VAT for non-compliance had no effect on the VAT collected under the period of review. Indicating that low willingness by taxpayers to pay correct taxes on time. Additionally, the study concludes that the VAT policy gap has no effect on VAT revenue in the period under review. Indicating that ZRA should improve measures of VAT enforcement. Thus, the study recommends that ZRA should make deliberate efforts to improve its enforcement by having a dedicated Enforcement Unit for Domestic taxes just like the one assigned to customs. Further, since the payer of VAT is the final consumer, ZRA should encourage voluntary tax compliance among final consumers by intensifying the demand a receipt campaign as well as increasing the education on the benefits of tax compliance to the nation’s development. Further, ZRA should expedite the process of fiscalization i.e. the mandatory issuance of fiscal receipts by all VAT registered suppliers.