A professor of Economics at the Kwame Nkrumah University of Science and Technolgy (KNUST), Eugenia Amporfu, is advocating the use of simple technologies such as Mobile Money for the payment of taxes in the country, especially in the informal sector.
According to Professor Amporfu, such a system will make it easier for persons in the informal sector to pay their taxes without any difficulty.
Speaking at an Economic Forum organised by the Danquah Institute in Accra on Friday, 10 May 2019 on the theme: ‘Bridging the gap between the formal and informal economy, the role of domestic revenue mobilisation in an era of Ghana Beyond Aid’, Prof Amporfu said the informal sector is an important asset that governments have not been tapped into to raise the needed revenue for development.
Touching on bridging the gap between the formal and informal sector, Prof Amporfu said: “Ghana still remains predominantly an informal economy. In principle, the formal sector is defined as the sector where activities can be monitored by the government and, so, production and its income can be measured, monitored and taxed.
“Its activities are included in the computation of the GDP. Activities in the informal sector, on the other hand, cannot be monitored or taxed and, in principle, not included in the computation of the GDP like other developing countries. However, Ghana is able to estimate the value added by the informal sector on the economy to the official GDP and in 2017, the informal sector added GHS73.3 billion to the GDP which forms about 28. 6 per cent, but this is far below the GHS183 billion that was contributed by the formal sector to the GDP.”
Prof Amporfu noted that although the informal sector employs about 80 per cent of the labour force in Ghana, tax revenue from that arena forms about two per cent of the total tax revenue. “Certainly, such inequity is not sustainable because it implies that 80 per cent of the labour force in the informal sector are shielded from paying taxes,” she said.
Touching on how much tax revenue Ghana loses from non-payment of taxes in the informal sector, the economics professor said: “In 2017, the labour force in Ghana was about 13.6 million. Assuming 80 per cent of this is found in the informal sector and taking into account the 11.9 per cent unemployment rate in that year, if each employed in the informal sector gave GHS10 a month, which means GHS2.50p a week, a total tax revenue of GHS1.15 billion would have been raised. If the GHS10 had been doubled to GHS20 a month per person, a total of GHS2.304 billion would have been raised and this amount would have increased the total tax revenue that year by 7.13 per cent and again this amount forms about 25 per cent of government expenditure on education in that year. Clearly the informal sector is an important asset that has not been tapped into.”
To get the informal sector to pay taxes regularly, Prof Amporfu advised governments to: “Formalise the informal sector. This is likely to be long and requires an effective strategic plan and the factors leading to this can be broad. For example, as the literacy rate increases, the informal sector is likely to shrink and the reduction of the literacy rate takes time but do we need to wait to formalise the informal sector before we can collect the needed taxes?
“Let’s introduce a tax system relevant to the informal sector. We need a tax system simple enough for the uneducated to understand, a tax system that uses modern and popular technology such as the cell phone.”
She noted that just as mobile money has been made simple, the technology should be harnessed so that people in the informal sector can pay their taxes through mobile money.
She said inasmuch as the government wants the informal sector to pay taxes religiously, the government must also be accountable to the people with regards to how the taxes collected are used.