Tax mobilisation in the informal sector in Ghana :A case of the Cape Coast metropolitan assembly

Abstract

Revenue mobilisation is one of the key activities of every government across the globe. One of the major means through which governments generate and mobilise revenue to undertake developmental activities is through taxation. In third world countries like Ghana, mobilising revenue from the informal sector has become a burdensome adventure. This is as a result of a large informal sector in place which is home to most of the economic players. In Ghana, it is estimated that, only 20% of Ghanaians pay direct income tax which is a very worrying situation. This thesis therefore, uses the mixed method approach to examine tax mobilisation in the informal sector in Ghana with Cape Coast as its area of study. The views of 396 respondents from the informal sector were sought using questionnaire as well as 5 elite interviews were conducted. After analysis of the data, the study revealed that, lack of permanent and visible place of business, poor record keeping practices and poor accounting practices, high illiteracy rate, lack of motivation and incentive as well as inadequate revenue collectors affect revenue mobilisation from the informal sector. Additionally, the study revealed that, individuals would work in the informal sector because of the low tax rate as compared to the formal sector, cumbersome bureaucratic procedure in the formal sector compared to the informal sector, high rate of illiteracy, and inadequate job opportunities in the formal sector. Also, the study revealed that, the use of ICT tools has a positive correlation with tax mobilisation in the informal sector. On the basis of the above, the study therefore recommended motivation for tax collectors to reduce corruption, use of ICT tools to enhance tax collection, broadening of the tax net, and proper accounting procedures amongst others as policy actions to be taken to enable more revenues to be generated from the informal sector.