This paper is targets the Government revenue authorities and finding innovative ways of raising revenue through the informal sector workers. All the revenue agencies are intensifying more revenue collection through old tax collection methods. This is done usually through the easy ways of PAYE, VAT and corporate taxes collection. The informal sector worker which account for 70% of the workforce are the least targeted for taxation. In view of growing public expenditure and reduction in annual budgetary support from development partners, there is the need to intensify domestic revenue generation through innovative strategies and capturing more informal sector workers.

1. DOMESTIC REVENUE MOBILIZATION: WIDENING THE TAX NET FOR THE
INFORMAL SECTOR IN GHANA
1. INTRODUCTION
According to the Ghana Revenue Authority, about 6 million people out of the 25 million
Ghanaian are to pay tax. Out of the figure, abysmally 2 million people actually attempt to pay
tax. This condition brings to bear the real fiscal challenge of the country. Until we take measures
to salvage this, our desire for development, self-reliance and economic growth will be
impossible. The local economy is largely informal and over 70% of the labour force is in that
sector. Meanwhile the relative share of the sector on the overall tax contribution has been low
over the years (from 21.27% in 1983 to 6.6% in 1999). For example in 2007, 88.7% of
government revenue from income tax came from the formal sector (PAYE) whiles very small
figure (11.3%) came from the self-employed and the informal sector. According to the
information from Ghana Revenue Authority, over 80% of businesses and Ghanaians in the
informal sector are not paying taxes due to lack of historical database to track them. The
government of Ghana budgetary operations have continued to register increasing budget deficits
despite initiatives to raise tax revenue and control expenditure. For the past two years to 2014,
the budget deficit averaged over 10% of GDP, largely because of reduced domestic revenue
collection and growing public expenditure. Domestic revenue collection in 2013 was 16.8% of
GDP and in 2014 there was a slight recovery in revenue collection, projected to amount 18% of
GDP, though far lower from the target of 21.6% of GDP. On the other hand, total expenditure
increased by 6.4% between 2013 and 2014. Salaries and wages continue take up a substantial
share of domestic revenue, accounting for 34.5% (down from 42.2% in 2013), coupled with high
debt service (interest) of about 23% of domestic revenue in 2013 and estimated to rise to 32% in
2014. Once statutory obligations (in particular public sector salaries and wages and debt
repayment) are accounted for, there remains a very narrow fiscal space for other essential
activities; particularly capital expenditures. (African Economic outlook report of 2015-
Ghana). Finding innovative and workable solution of widening the tax net to capture greater
percentage of informal sector worker is necessary. The current tax system is overburdening the
formal sector with continuous increment of tax while the majority in the informal sector are
paying less or non in taxes.

2. Taxes in the formal sector Taxes in the informal sector
2.0 CHALLENGES OF INFORMAL SECTOR TAXATION AND WAYFORWARD
2.1 Lack of data on small scale industries in the informal sector and property owners
One of the major constraints inhibiting government efforts at identifying the informal sector jobs
for taxation is the lack of credible and accurate data on these businesses. This is even more
complicated for small scale artisans who do not have business location but operates and earn
income. For instance, artisans engaged by private real estate developers are earning a lot of
money and not paying tax. The same situation applies to property owners who are not paying
regular tax especially owners of private buildings and landed property. Even those properties that
are taxed, the amount paid is not based on any updated valuation of the property.
The starting point in addressing the issues is for government to revisit the failed project of
national identification system. Credible tax regimes revolve around credible database and this
makes strategic revenue mobilization decisions easier. We need to take the National
Identification system and the street naming exercise serious.
2.3 Lack of Unionization in Ghana
A lot of small scale businesses are not unionized or put into association for purposes of
identification, education and capacity building and for taxation. Ghana had made some moderate
progress in that regard with unionization of vehicle owners, agricultural workers, Timber and
wood workers union etc. but more needs to be done. The best approach is to unionize and
delegate the tax collection of the informal sector to trade unions and associations since the
informal sector cannot be reached through large bureaucracies (Joshi & Ayee, 2008).

3. 4.0 CORRUPTION AND PRUDENT USE OF TAX REVENUE
Tax utilization and efficient use of funds is as important as the collection. To motivate people to
pay more tax, they should see evidence on the usage by building public confidence by ensuring
judicious use of resources. There are two issues that influence the payment of tax: people
capacity and willingness to pay. Though both are important, my emphasizes is on the willingness
to pay. Public confidence determines the willingness to pay and if the taxpayer perceives corrupt
practices and unwise spending of tax revenue they will not be willing to pay.
Public perception of the fairness of the tax system and the belief that taxes will be well spent are
highlighted in many studies as being important to tax morale and compliance (Fjeldstad &
Heggstad, 2012; Ali, Fjeldstad, & Sjursen, 2013; OECD, 2013a).
To address this situation, more education is required on the importance of tax payment and more
citizens and government engagement on the judicious use of tax revenue. Key measures to
improve compliance are outreach and education through civil society association that facilitate
discussions between government and citizens, improving payment and processing services, and
credible deterrence and enforcement (OECD, 2013a; 2013b). Education can be through different
forms of media and schooling, and can involve teaching taxpayers their responsibilities, how to
pay their taxes, and how tax money will be spent. Modernizing tax administration can improve
tax-related processes; credible deterrence requires accurate identification of tax evaders and
appropriate punishment.
References
Africa economic outlook report 2015
Fjeldstad, O-H. & Heggstad, K. K. (2012). Building taxpayer culture in Mozambique, Tanzania
andZambia: Achievements, challenges and policy recommendations (CMI Report R 2012:1).
Bergen: Chr. Michelsen Institute
Joshi, A. & Ayee, J. (2008). Associational taxation: a pathway into the informal sector
Ghana Internal Revenue Authority
OECD. (2014). Tax evasion and illicit financial flows. In Illicit financial flows from developing
countries: Measuring OECD responses. Paris: OECD Publishing.