VAT Refunds in Developing Countries

Abstract

The value-added tax (VAT) has one major weakness: its collection mechanism requires governments to refund tax. Many developing countries find this requirement hard to abide by, with Zambia nearly discarding its VAT as a result. This chapter asks and answers four questions. One, should developing countries with a VAT consider an alternative broad-based consumption tax that does not require refunds? Two, what policy options can be recommended to decrease VAT refund claims? Three, what administrative options can improve developing countries’ VAT refund practices? And four, why should developing countries prioritize the prompt payment of VAT refunds? I conclude that it is possible and in the best interest of developing countries to pay VAT refunds promptly.