Value added tax (VAT) has grown in importance in Africa since it was introduced on a large scale in the 1990s. It is now the largest single source of tax revenue for African governments. At the same time, and almost perversely, the efficiency of VAT collection is lower in Africa than in any other world region. It follows that nominal rates of VAT are relatively high in Africa, but many enterprises manage to evade paying, leaving others facing an unfairly high VAT burden. One of the policy responses to this problem has been the addition of the withholding principle into VAT collection – the Value Added Withholding Tax (VAWHT). Withhholding, sometimes known as tax retention, is an important component of efficient taxation. Withholding is based on the fact that typically some proportion of the payments made to suppliers by companies and other economic agents should ultimately be remitted to government as taxes.
