The Vice President of the Republic of Ghana, Dr. Mahamudu Bawumia, has stated that the informal sector is outside the scope of the Revenue Assurance and Compliance Enforcement (RACE) Initiative. As such, he urged the Ghana Revenue Authority (GRA) to find simpler ways to ensure tax compliance at the basic level.
Speaking at the official launch of the RACE initiative, Dr. Bawumia stated that Government strives to create a conducive environment to simplify the tax assessment and reduce the cost of compliance to large tax payers. However, he highlighted the need to simplify enforcement and compliance at the retail and micro level- a modified tax system.
“This group includes most of our market women, and the artisans in the informal sector. This group of potential tax payers are outside the scope of RACE.
“For these group of citizens, the issue is not with their tax evasion or tax avoidance. And their non-compliance may have more to do with their tax education and how assessment and collection are enforced. Let us find simpler ways to encourage tax compliance at this basic level.”
Dr. Bawumia
Potential revenues from the informal sector
The Vice President in his speech, cited a recent study by the World Bank in November, 2020 which indicated that potential tax revenues from sole proprietors, who usually operate in the informal sector, could amount to 12.6 percent of GDP.
Consequently, Dr Bawumia urged the Ministry of Finance and the Ghana Revenue Authority to consider the peculiar characteristics of the informal sector when designing the proposed modified taxation system.
“We also realized that the education as well as the nature of the businesses of operators in the informal sector results in poor record keeping. Asking such businesses to provide records for the last three or four years for an audit is an exercise in futility and will be perceived as harassment.
“We therefore need to simplify their income or profit tax assessment. One option is the use of a flat tax regime under a modified taxation system to cover micro and small enterprises which should cover most women retailers and many in the informal sector”.
Dr. Bawumia
Proposed simplified tax system
Still on the proposed tax system, the Vice President suggested a flexible means of filing tax returns in the country. Dr. Bawumia is confident that the proposed tax system, when fully implemented, will reduce the stress involved in paying of taxes in the country.
“For medium-sized enterprises there could be the option to submit to conventional tax assessment at the corporate tax rate or opt for a flat tax based on turnover under a modified taxation system.
“For the micro and small enterprises, we must leverage on technology to simplify the collection and payment of the 3 percent flat tax. We believe that a simplified flat tax will allow more people at the retail level to better assess their tax obligations and make payments without too much human interface and a rigorous auditing system”.
Dr. Bawumia
The RACE Initiative is designed to increase domestic revenue mobilization in order to address the economic challenges arising from the COVID 19 pandemic. By so doing, it will make Ghana more fiscally independent.
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