The Ghana Revenue Authority (GRA) is embarking on a significant reform of its tax system, targeting the vast informal sector, which comprises over 70% of the nation’s workforce. Starting July 1, a simplified tax regime will be implemented, aimed at bringing informal sector workers into the tax net and boosting revenue collection. This new system departs from traditional methods, offering a more straightforward and manageable approach for small-scale operators. The core principle is a tiered system based on annual turnover. Individuals with a turnover below GHS 20,000 will pay a fixed quarterly tax, ranging from GHS 25 to GHS 45, eliminating the complexities of calculating income tax and filing returns. This fixed-rate system ensures predictability and ease of compliance for these micro-businesses.
This modified taxation system is designed to address several key challenges in Ghana’s tax landscape. Firstly, it tackles the issue of low tax compliance within the informal sector. The simplicity of the new system is expected to encourage participation, as it removes the perceived burdens and complexities associated with traditional tax filing. Secondly, it aims to enhance fairness and efficiency in revenue collection. By clearly defining tax obligations based on turnover, the system promotes transparency and reduces the potential for arbitrary assessments or corruption. Finally, it aims to broaden the domestic revenue base, providing the government with more resources to fund public services and development initiatives.
The development of this new system was informed by research conducted in collaboration with BudgIT Ghana, the Society for Women in Taxation Ghana, and the International Budget Partnership (IBP). Their report, “Ghana’s Untapped Economy: Analysis of Tax Compliance Behaviour of Informal Sector Workers in the Greater Accra Region,” shed light on the preferences and challenges faced by informal workers regarding taxation. A crucial finding was the relative comfort informal workers feel when interacting with local assemblies for tax payments, compared to the national tax authority. This insight highlights the importance of trust and accessibility in tax administration.
Based on this research, a key recommendation is to foster greater collaboration between the GRA and Metropolitan, Municipal, and District Assemblies (MMDAs) in tax collection efforts. Leveraging the existing relationship between informal workers and local authorities could significantly improve compliance rates and streamline the collection process. This decentralized approach recognizes the importance of local context and builds on existing trust structures within communities. By working together, the GRA and MMDAs can create a more efficient and user-friendly tax system for informal sector workers.
The introduction of the modified tax system has been widely welcomed as a positive step towards formalizing Ghana’s informal economy. Stakeholders believe that its simplicity will make tax compliance less daunting for small-scale operators, ultimately contributing to greater participation in the tax system. The clear and straightforward nature of the fixed quarterly payments eliminates confusion and reduces the administrative burden on both taxpayers and the GRA. This simplified approach is expected to foster a more positive attitude towards tax obligations and encourage voluntary compliance.
The success of this initiative hinges on effective communication and public awareness campaigns. The GRA is urged to collaborate with media organizations and community leaders to disseminate information about the new system and its benefits. Ensuring that informal sector workers understand the rationale behind the reform and how it will impact them is crucial for fostering buy-in and achieving widespread compliance. This concerted effort to educate and engage the target population will be essential for the long-term success of the modified tax regime and its contribution to Ghana’s economic growth.
