Professor William Coffie, Head of the Department of Accounting at the University of Ghana Business School (UGBS), has called for a more strategic approach to incorporating Ghana’s informal sector into the tax system. Speaking at a post-budget discussion organized by Lima Partners on March 20, 2025, he highlighted the ongoing challenges of formalizing the informal sector and pointed out that current efforts to widen the tax net are insufficient.
He suggested that financial institutions, including microfinance agencies, the Ghana Enterprise Agency (GEA), and the proposed Women’s Development Bank, could play a significant role in promoting tax compliance among small businesses. “With the proposal to establish the Women’s Development Bank, along with existing institutions like the GEA and MALOC, there are opportunities to encourage tax compliance,” Prof. Coffie said.
He argued that these institutions could incentivize small businesses to comply with tax regulations by offering financial support to those that maintain proper records and regularly pay taxes. “If a micro or small business can show three years of financial records and consistent tax payments, we should consider supporting them with micro-credit. Once they see that compliance brings tangible benefits, they are more likely to adhere to the system,” he explained.
Prof. Coffie further proposed the creation of a Tax Compliance Index, which would track and reward small businesses that meet tax obligations. “This index could be developed in collaboration with academics and financial experts to assess compliance and encourage accountability. Such an initiative could generate additional revenue while fostering a culture of responsibility,” he added.
On the broader issue of formalizing the informal sector, Prof. Coffie questioned the current approach, noting that many efforts focus on formal structures that do not align with the realities of the sector. “We keep talking about formalization, but how do you formalize a sector that naturally operates outside of formal systems? Year after year, this conversation persists without practical solutions,” he said.
He emphasized the need for innovative, practical measures that resonate with informal sector operators rather than relying solely on policies that may not be applicable. By leveraging financial institutions and creating incentive structures, Prof. Coffie believes Ghana can better integrate the informal sector into the tax system, ultimately boosting domestic revenue.
