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Ghana Revenue Authority officials were urged to design and implement a modified tax system for the large informal sector of the Ghanaian economy to make it easier for them to meet their tax obligations to the state.
Vice President Mahamudu Bawumia, who launched the appeal on Wednesday, August 25, 2021, said that while the government is working to create an enabling environment to simplify tax assessment and reduce the cost of compliance for big business taxpayers, there is also a need to simplify enforcement and compliance at the retail and micro level.
“This group includes most of our women traders and artisans in the informal sector. This group of potential taxpayers is outside the scope of RACE.
“For this group of citizens, the problem is not their tax evasion or their tax evasion. And their non-compliance may have more to do with their tax education and how assessment and collection is applied. Let’s find simpler ways to encourage tax compliance at this basic level.
Vice President Bawumia was speaking at the launch of the Revenue Assurance and Compliance Initiative (RACE), designed to increase domestic revenue mobilization to address economic challenges arising from the Covid 19 pandemic and make Ghana more tax independent.
Citing a recent World Bank study (November 2020) which indicated that the potential tax revenues of sole proprietorships, which typically operate in the informal sector, could amount to 12.6% of GDP, Dr Bawumia called on the ministry of Finance and Ghana Revenue Authority to consider the particular characteristics of the informal sector when designing the proposed modified taxation system.
“We also realize that education as well as the nature of the activities of informal sector operators lead to poor record keeping. Asking these companies to provide the records of the last three or four years for an audit is a futile exercise and will be seen as harassment.
“So we need to simplify their assessment of income tax or profit tax. One option is the use of a flat tax regime as part of a modified tax system to cover micro and small enterprises which should cover most women traders and many women in the informal sector.
“For medium-sized businesses, there might be the option of undergoing a conventional tax assessment at the corporate tax rate or opting for a flat-rate tax based on turnover as part of ‘a modified tax system.
“For micro and small businesses, we need to take advantage of technology to simplify the collection and payment of the 3% flat rate tax. We believe that a simplified flat-rate 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 audit system, ”he said. .
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