Ghana's informal sector contributes less than 5% of the country's total tax revenue, despite employing approximately 80% of the national workforce. This sector also accounts for an estimated 27% to 40% of Ghana's Gross Domestic Product (GDP). This significant disparity creates an unequal tax burden on the formal sector and reduces government resources.
This low tax contribution happens because 92.3% of all businesses in Ghana are informal. These businesses include artisans, market traders, commercial drivers, and small-scale entrepreneurs. This structural imbalance disproportionately burdens the formal sector, which includes civil servants and registered companies. The formal sector currently bears the overwhelming majority of Ghana's tax obligations.
This issue highlights a major challenge for Ghana's economic stability and public finance management. The Ghana Statistical Service (GSS) confirmed these figures in its 2024 national report, 'Productivity, Employment and Growth'. The over-reliance on the formal sector for tax collection makes the system fiscally inefficient and unjust. It discourages growth in the formal economy and limits the government's ability to fund essential public services. These services include roads, hospitals, schools, and social protection programs.
Dr. Maxwell Kwame Mawuli's analysis points out that the obligation to pay taxes applies to all citizens. Article 41(j) of Ghana's 1992 Constitution requires every citizen to declare income honestly and satisfy all tax obligations. This constitutional duty applies equally to all, whether a salaried employee or a market trader. The current taxation system does not fully capture this broad legal mandate.
Addressing this imbalance requires new approaches to taxing the informal sector, focusing on direct income tax. Solutions include improving the existing legal framework and administrative methods. Ghana's Income Tax Act, 2015 (Act 896), and its amendments already provide a basis for collection. Integrating the Ghana Card with the Tax Identification Number (TIN) system can also help. Digital technology offers a transformative tool for broadening the tax net effectively.
The government and policymakers must implement practical, fair, and technology-driven strategies. These strategies will help bring informal sector players meaningfully into the direct tax net. This move is crucial for enhancing the country's fiscal capacity and ensuring a more equitable distribution of the tax burden. A balanced tax system will support sustainable economic growth and public service provision across Ghana.