UN VAT & GST Guidance for Developing Countries Explained

The United Nations issued a Guidance Paper Series on VAT and GST for developing countries, which presents four guidance papers approved by the Committee. Guidance papers provide countries with practical tools to develop strong and fair tax systems that support sustainable development goals. More specifically, the papers cover an overview of VAT and GST in developing countries, approaches to taxing small businesses, procedures for VAT and GST refunds, and the adoption of new technologies, such as e-invoicing and big data, to enhance compliance.

Main Areas of Focus for Each Paper 

Paper One lays the foundation for developing countries by examining the purpose of consumption taxes, how VAT and GST operate, key design elements, potential regressivity issues, and administrative challenges, providing policymakers with a broad analytical basis. 

One of the key areas of focus in this first paper was technology. The paper highlights that tools such as blockchain, integrated tax administration systems, and e-invoicing can automate VAT returns, reduce administrative burdens, improve the accuracy and completeness of records, and enable more effective compliance monitoring.

Paper Two focuses more on threshold policies, including exemptions, voluntary registration, sector-specific thresholds, and layered thresholds to support gradual inclusion, while addressing evasion risks and strategies to simplify compliance for small businesses. Notably, this paper provides an overview of average VAT registration thresholds by region, ranging from USD 22,263 in North America to USD 493,206 in Middle Africa.

The third paper provides more detail on VAT and GST refund systems, discussing their rationale, mechanisms, and challenges, and emphasizes the administrative safeguards required for timely and transparent refunds. The paper underlines that processing of VAT refunds involves a complex sequence of operations, including forecasting, budgeting, risk assessment, and claim processing. 

Finally, Paper Four explores how countries can improve VAT data management and tracking, highlighting country-specific approaches and encouraging the adoption of technologies such as e-invoicing, big data analytics, and e-reporting systems tailored to each administration’s capacity and needs. The key remark this paper provides is that while technology can improve VAT compliance in many ways, there is no single solution that fits all needs. Therefore, countries should carefully consider which technologies to adopt and how to use them.

Conclusion

Even though the UN Guidance Paper Series on VAT and GST primarily provides valuable information for countries and governments, taxable persons and tax professionals can also benefit from it. By understanding the insights provided in these four papers, taxable persons can better meet their obligations, and tax professionals can provide more detailed, informed guidance and services.

Source: United Nations - Guidance Paper Series on Value Added Taxes/ Goods and Services Taxes for Developing Countries