Next time you engage the services of informal sector artisans, you are advised to withhold a portion of their payment as withholding tax for the Ghana Revenue Authority (GRA); this is a recommendation by the Assistant Commissioner of the GRA, Dr. Alex Moyem Kombat.
The Assistant Commissioner is convinced that this is one of the surest ways that the country can rope in the large informal sector players into the tax net. Dr. Kombat is worried that although the informal sector employs about 80% of the total workforce of the country, they contribute just about 5% of the total revenue of the country.
This situation, some tax analysts find to be very unfair and a demotivator for the few taxpayers in the formal sector.
In an article titled “Taxation of the Informal Sector in Ghana: Challenges, Policy Perspectives and the Way Forward” authored by Dr. Kombat copied to The High Street Journal, he strongly argued that to boost taxes from the informal sector, Ghanaians who patronize the services of informal sector artisans such as carpenters, masons, tilers, welders, and plumbers should withhold a portion of the payment they offer these workers and remit it to the state as withholding tax.
Per this recommendation, the next time a carpenter roofs your house, a mason builds your wall, a plumber fixes your kitchen sink, please hold back a portion of their payment and transfer it to the GRA as tax.
“It is recommended that people who engage the services of the informal sector artisans (e.g. carpenters, masons, tilers, welders, plumbers, blacksmiths etc.) and other players in the sector withhold part of the money they pay for the services to GRA as withholding tax,” he strongly proposed.
A critical analysis of this recommendation reveals that despite its potential to help in the domestic revenue mobilization from the informal sector, it is also a recipe for public debate and chaos.
The involvement of clients of these informal artisans is another ingenious avenue to create a monitoring system that helps to mitigate evasion. This model has been practised in some parts of the world and has shown some degree of success.
Beyond the fiscal importance, critics believe such a situation can fuel mistrust between citizens and informal workers. This is a recipe for confusion, a threat to business relationships, and long-standing friendships.
Moreover, without any digital tracking system, how will clients determine what to deduct or prove they remitted the tax correctly? What safeguards will protect artisans from exploitation? Is there any legal backing that allows clients to do so?
Dr. Kombat’s recommendation on the face value shows the potential of enhancing informal tax revenue mobilization, but without proper systems, it could be a recipe for exploitation, chaos, and mistrust.
