As the government aims to improve revenue mobilization from the informal sector of the economy, Assistant Commissioner of Research and Policy at the Ghana Revenue Authority (GRA), Dr. Alex Moyem Kombat, is proposing some revolutionary incentive packages for taxpayers in the sector.
Dr. Kombat is recommending that a portion of taxes mobilized from the informal sector be directed to fund pensions and health insurance benefits for taxpayers in the sector. With such tangible benefits, the GRA official believes compliance will be enhanced as informal sectors players will be motivated to honor their tax obligations.
In an article authored by Dr. Alex Moyem Kombat titled “Taxation of the Informal Sector in Ghana: Challenges, Policy Perspectives” cited by The High Street Journal he bemoaned that although the workforce in the country’s informal sector makes about 80% of the total workforce, they contribute just 5% of the total tax revenues.
Such a situation, he says, requires broader efforts to improve the tax revenue mobilized from the sector.
Dr. Kombat emphasized that the time has come for tax administration in Ghana to offer tangible benefits to informal sector players, many of whom operate without social security, formal savings, or health protection.
He recommended that the country should amend the tax laws to allow the “use of part of the taxes paid by the informal sector taxpayers for pension and health insurance schemes as an incentive to encourage compliance.”
By tying tax payments to long-term social benefits like pensions and health insurance, GRA will be able to redefine the social contract between the state and the informal economy, hence boosting their compliance.
He believes that for many carpenters, seamstresses, market women, and mechanics, the prospect of retirement benefits or subsidized healthcare could serve as a powerful motivator to register with the GRA and fulfill their tax obligations.
In addition to social protection incentives, Dr. Kombat says the GRA must consider launching periodic raffles as a way to woo the informal sector taxpayers toward compliance. Taxpayers who regularly meet their obligations could be entered into draws for prizes ranging from household appliances to business support packages.
Such behavioral incentives have proven effective in countries like Rwanda and Brazil, where tax lotteries have dramatically increased tax receipt submissions and fostered a culture of compliance among small business owners.
To complement these incentive schemes, Dr. Kombat also recommended scaling up the use of Point of Sale (POS) devices and electronic invoicing systems to improve transparency and efficiency in VAT collection under the 3% Flat Rate Scheme.
“Carrying out raffles as a way of motivating the informal sector taxpayers to pay taxes is recommended. Also, the use of Point of Sale (POS) devices and an electronic invoicing system for VAT administration can help improve revenue from the VAT Flat Rate Scheme, which is mostly paid by the informal sector taxpayers,” he proposed.
The Assistant Commissioner argues that GRA can better track transactions, reduce evasion, and simplify the payment experience for traders, many of whom are gradually embracing mobile money and digital tools in their daily operations.
