Is the Informal Sector a tax-haven? – A review of the Vehicle Income Tax paid by commercial vehicles


“Taxes are what we pay for civilised society” — Oliver Wendell Holmes, Jr.

Yes, there is a price to pay for every civilised society: but there is imbalance and unfair distribution of the tax burden when people of equal paying ability do not pay their fair share in society.

The informal sector is the largest employer in Ghana, even though it is composed of small units in a very disorganised way – ranging from table-top sellers to artisans, taxis and commercial ‘tro-tro’ vehicles. These sectors do not require any special regulation, so entry and exit into and from the sector is easy.

At the national level, the widespread informal sector raises general concern as to what appropriate tax system can address the sector to make it pay its fair share of taxes to society. This undoubtedly makes domestic revenue mobilisation in Ghana a challenge.  There are potentially larger taxpayers in the informal sector than the formal sector

Income Tax Contribution of the Informal Sector

Over the years, successive governments have introduced several strategies in an attempt to tax the informal sector and broaden the tax base; but these have failed to bring it to the required level. About 86% of Ghana’s workforce is in the informal sector. The GRA has over the years expressed difficulty in taxing the informal sector.  Currently, the informal sector contributes 1% of the total tax revenue, according to the GRA statistics in 2018; and because the informal sector does not get taxed, the overall tax burden is very unevenly distributed across the economy.  These inequities under our current tax system are unfair to all those in the formal sector. When considering the general-equilibrium effect of tax reforms, the business community is likely to be hostile when tax policy is not adequately balanced in its implementation. In an effort to improve the informal sector’s contribution to national tax development, the vehicle income tax was introduced for commercial vehicles.

The Vehicle Income Tax

The Vehicle Income Tax (VIT) started as a standard tax assessment under the Income Tax Decree 1975 (SMCD 5).  Under section 44, the Commissioner for Finance was empowered to make legislative instruments to specify persons or classes of persons which would be subject to a fixed standard assessment of income for those identifiable groups.

The Internal Revenue Regulation 2001 (LI 1675) maintained this standard assessment. Regulations 25 provided tax installments payable by members of certain tax categories, including the GPRTU and other transport unions which operate in lorry parks, taxi ranks or similar places. Under this arrangement, owners of specified vehicles were required to pay a flat rate per week ranging between GH¢0.05 and GH¢0.20. The leadership of these unions were collecting the taxes on behalf of GRA and paying it over to them at the end of each week.

In 2003, the system whereby union leaders were collecting the taxes from their members was replaced by VIT stickers under LI 1729, 2003. The key features of the VIT were that:

  1. The stickers were mandatory for all commercial vehicles, and owners were required to purchase the stickers quarterly in advance – with the stickers valid for that quarter only.
  2. The stickers are to be displayed on the windscreen of the commercial vehicles, just like the insurance and roadworthy certificates.
  3. The Ghana Police Service MTTU enforces compliance on behalf of GRA.

The 2016 Income Tax Regulations revised the taxes, and below are current taxes payable by commercial vehicles, depending on the type of vehicle.

Tax Installments Payable by Owners of Commercial Vehicles:

Regulation 22 of the Income Tax Regulations, 2016 (L.I 2244), Regulation 22 of L.I 2244 provides as follows:

  1. This regulation applies to the owner of a commercial vehicle of the description specified in the second column of the Second Schedule.
  2. A person who owns a vehicle of the description specified in the second column of the Second Schedule shall, for each year of assessment, pay as tax the amount fixed in relation to that type of vehicle in the fourth column of that Schedule.
  3. Payment of tax under sub-regulation (2) shall be by quarterly installment on or before the fifteenth of January, April, July and October of each year of assessment.
  4. The Commissioner-General shall, upon payment of the tax at any office of the Ghana Revenue Authority, issue a sticker in acknowledgement of the payment.

Below are the taxes payable by some commercial vehicles (on a quarterly and annual basis)

Class of vehicle Description Total Annual Taxes (GH₵) Quarterly Payment (GH₵)
A1 Tractor and tanker 40.00 10.00
A2 Taxis/ private taxis 48.00 12.00
A4 Trotro (up to 15 persons) 64.00 16.00
B1 Hiring cars (saloon, caravan) 320.00 80.00
B2 Hiring cars (4×4) four wheel 480.00 120.00
B3 Trotro (up to 19 persons) 80.00 80.00
B4 Trotro (20-23 persons) 88.00  22.00
C1 Commuter (up to 15 persons)  80.00 20.00
C2 Commuter (16-19 persons) 100.00 25.00
C4 Tour operator (up to 15 persons) 320.00 80.00
C5 Commuter (up to 38 persons) 160.00 40.00
C6 Tour operator (16-23 persons) 400.00 100.00
C7 Commuter (39-45 persons) 200.00 50.00
C8 Tour operator (24-38) 280.00 70.00
C9 Tour operators (above 45 persons) 600.00 150.00
C10 Commuter (46 and above persons) 240.00 60.00
D2 Dry cargo /sewage tankers garbage trucks 256.00 64.00
D5 Tipper-truck (single axle) 320.00 80.00
D6 Tipper-truck (double-axle) 480.00 120.00
D7 Articulated truck trailers /timber truck  800.00 200.00


Filing Annual Tax Returns after Quarterly Tax Stickers

The amount of tax paid for the Stickers is supposed to be advance payment by installment, and as such at the end of the year a return of income is required to be filed, whereby the owner’s total income is declared to the GRA as well as any additional taxes paid.

Regulations 22 (10) provides that: “tax paid under this regulation by a person does not relieve that person from the obligation to file a return of income under section 124 of the Act, but shall be credited against tax assessed to the person in accordance with the Act”.

Failure to File Tax Returns

When an owner of a vehicle fails to file annual tax returns, the penalty is provided under section 73 of the Revenue Administration Act, 2016 (Act 915). Under section 73 of Act 915, “A person who fails to file a tax return as required by a tax law is liable to pay a penalty of GH¢500 and a further penalty of GH¢10 for each day that the failure continues”.

The Arrival of Uber, Bolt etc.:

Technology redefined the commercial transport sector with the emergence of Uber, Bolt and the like – which are gradually taking over the traditional taxi business.

Uber, for instance, provides an easy and secured way of requesting transportation via the Uber app; and anybody with a private vehicle can register and begin to provide commercial transport without the need to brand the vehicle as a ‘TAXI’. In the end, Uber charges a maximum of 30% while the owner keeps a minimum of 70%.  The commission of 30% paid to Uber can go as low as 5% if a certain number of trips are made by the drivers over a specified period – implying that a driver’s share of the fare can go up to 95%. The average sales that drivers make to owners of the vehicle is GH¢400 per week (GH¢1,600 per month or GH¢4,800 per quarter).  A typical driver makes more sales to cover his share as well as fuel for the week.

Is the Informal Sector a tax-haven?

Critics say actors in the informal sector of Ghana operate in a tax-haven because the tax system operated by the GRA does not reflect the actual income tax they are supposed to pay. Many commercial vehicle owners do not file tax returns to declare the actual income earned. What they pay is only the quarterly taxes, which is clearly inadequate and does not reflect the reality with regard to the income they earn…inferring from the transport fares passengers pay.

Uber operators do not acquire VIT stickers because anyone can use his private vehicle for Uber operations. The drivers of commercial vehicles do not pay taxes on their income. For instance, Trotro (up to 15 persons) paying GH¢16 per quarter (GH¢4 per month) clearly does not reflect the income tax properly so charged. Critics could be right if these are the amount of taxes paid by commercial car operators. The amount paid for transport fares and hiring cars do not reflect in the taxes paid.

The way forward:

  1. The GRA should revise taxes paid on a quarterly basis to reflect the reality in Ghana.
  2. Tax returns should be demanded before Stickers are issued.
  3. The GRA should tax drivers by giving them tax-cards, and the police should enforce this.
  4. Drivers of Uber and the like should be taxed. GRA should make payment for VIT Stickers by Uber a requirement.

In the end, “Taxes are what we pay for civilised society.” — Oliver Wendell Holmes, Jr.

The writer is an Associate Tax Consultant at MTC

Tel: 0202-397-017 Email: [email protected]

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