Suggests new ideas on mobilising income tax revenue from the informal sector in Ghana

1. By: Yaw Brako Osei-Tutu
Date: December 10, 2015
Email: yawbot@gmail.com
A presentation completed as part of coursework requirements
for the World Bank MOOC on Coursera titled “ Financing for
Development: From Billions to Trillions to Action”

2.  Ghana is a lower middle income country with a population of about 25
million located in West Africa
 Like many other developing countries Ghana has a very huge informal
sector, representing about 80% of the economy
 Income tax revenue mobilisation over the years from this shadow
economy has proved a very formidable challenge for the government
 Given the central and significant role of public finance in financing
development, this challenge must undoubtedly be overcome if Ghana
is to realise her economic aspirations
Background

3.  Informal sector workers comprise petty traders, farmers, fisher folk,
carpenters, masons, plumbers etc. whose incomes are irregular and
difficult to assess
 Record-keeping is either poor or non-existent
 Although initiatives such as tax stamps have been introduced, patronage
remains very low as few citizens willingly make good their tax obligations
 Monitoring and enforcement of compliance in this sector is complicated
and overly costly as locating taxpayers is problematic as a result of a lack
of residential addresses and poor urban development
 New methods have to be explored to address this formidable challenge
The Problem

4. 
 Few people willingly pay their taxes because they are unable to see the connection
between contributions they make and benefits they receive
 In Ghana where infrastructure services are very inadequate, people would pay for
private operators to deliver water to their homes but do not see how tax revenues
subsidise the operations of the national water treatment and distribution company
 People would pay for treatment or medication from a private healthcare facility for
example but do not understand that tax revenues are used to fund public health
programmes such as vaccinations
 People would pay for private education but wouldn’t appreciate how tax revenues
subsidise public education
 It is quite difficult to see how TAXES paid translate into BENEFITS for everyday
people; this is more so when you have a large and poorly educated populace
The Problem

5. 
 Question: How do we link TAXES and BENEFITS?
 Answer: The Citizen Card!
 The citizen card will be a card much like an ATM card with national ID information.
You would be able to pay your taxes by purchasing scratch cards and sending an
SMS to a short code with your mobile phone, very much like recharging mobile
phone credit.
 There is a very high mobile phone penetration in Ghana as is the case in many
developing countries which have leap frogged to contemporary technologies and
skipped legacy systems
 Holders of a citizen card would be entitled to discounts on public goods and services
at the point of access
The Idea

6. 
 Reasonable predetermined flat tax rates have already been developed
for informal sector workers by the Ghana Revenue Authority
 A petty trader, for example, who is a holder of a citizen card, upon
enrolling her daughter in a secondary school would benefit from a
considerable discount in school fees if she makes good her tax
obligations
The Idea

7. 
 The citizen card is a rough very early-stage concept I have
 Naturally, operationalisation of such a system would have many
technical, logistical, financial and managerial challenges
 I believe, however, that such a system is worthy of further discussion
and development given the importance of public finance in the
development finance mix
Conclusion

8. 
 Ghana Revenue Authority (GRA) -
http://www.gra.gov.gh/docs/info/faqs/faq_income_tax.pdf
 Understanding the Tax Paying Behaviour of the Informal Sector
Towards Improved Public Revenue Mobilisation -
http://balme.ug.edu.gh/index.php?option=com_content&view=articl
e&id=207&Itemid=240
 GRA widens tax net with scheme for informal sector -
http://business.myjoyonline.com/pages/news/201207/89687.php
Bibliography

9. 
Thank You
The End