By Buertey Francis BORYOR
Head of Accounting at the University of Ghana Business School (UGBS), Professor William Coffie, has called for a strategic approach to integrating the country’s informal sector into the tax system.
Speaking at the 2025 Post-Budget Forum webinar hosted by LIMA Partners, he proposed linking tax compliance to financial support schemes as a way to encourage small businesses to register and pay taxes.
Coffie suggested using initiatives like the Women’s Development Bank and MASLOC to encourage small businesses to register, keep records, and pay taxes.
“We always talk about formalising the informal sector so they can pay taxes, but what concrete steps are we taking? Instead of just urging compliance, we should provide incentives. If small businesses, like a salon can show three years of proper record-keeping and tax payments, they should qualify for microloans and grants from agencies like MASLOC, the Ghana Enterprises Agency (GEA), and the Women’s Development Bank, he elaborated.
According to him, this approach has worked in places like the UK, where compliant businesses access financial support.
Using financial incentives to boost tax compliance
Coffie said many informal businesses avoid taxes because they see no direct benefits. By introducing a tax compliance index, he noted that the country can reward businesses that meet reporting and payment standards.
“Government agencies and financial institutions can develop a system where businesses that regularly pay taxes are given priority for financial support. This will create an incentive to comply voluntarily rather than relying only on enforcement,” he explained.
Moreover, he stressed that integrating the informal sector should be a long-term strategy. “This is not something to fix in one fiscal year. We need a structured plan over the next three to four years,” he added.
VAT reforms offer relief to businesses
Coffie welcomed recent VAT reforms, describing them as a relief for businesses.
“The essence of VAT is that input and output taxes should balance. what you pay on inputs should match what you collect on outputs. But with the extra levies, businesses ended up paying more than 21 percent on inputs and only collecting 15 percent on outputs. This made running a business expensive. The reforms are a big relief,” he said.
While admitting that the removal of these levies will improve the overall business environment, he urged government to go further in making VAT fairer for businesses.
Tackling tax evasion through bonded warehouses
Coffie also raised concerns about tax evasion through the misuse of bonded warehouses
“We need to look closely at how bonded warehouses are being used. Some firms take advantage of the system to evade taxes. Strengthening monitoring will help ensure businesses pay what they owe,” he stated.
Agriculture for economic transformation
The economist also welcomed the government’s Agriculture for Economic Transformation initiative, which aims to boost food production and lower inflation.
“We all know how food prices contribute to inflation. Supporting local production—especially in areas like aquaculture—will reduce our dependence on expensive imports,” he noted.
Empowering youth through skills development
Coffie also commended government’s investment in vocational training and employment programs, including the National Apprenticeship Programme, Adwumawra, and the National Coders Programme.
“Not everyone will transition through the traditional education system. These initiatives provide essential skills that can make young people both employable and self-sufficient. Over time, this will help expand the tax base as more individuals enter the formal economy,” he said.
The economic context of the 2025 budget
The country’s 2025 budget comes at a time when it is working to recover from economic difficulties. Since 2023, it has been following an economic recovery plan with support from the International Monetary Fund (IMF). The program was introduced to help stabilise the economy after high inflation, currency depreciation, and rising debt.
In December 2024, President John Mahama took office and promised to reset the economy. One of his main strategies has been to remove some taxes to ease the burden on businesses. The 2025 budget reflects this new plan, balancing tax cuts with other ways of raising government revenue.
However, some experts believe that the government must find ways to ensure long-term revenue generation. Prof. Coffie suggested that instead of putting more pressure on businesses that already pay taxes, the government should focus on getting more people into the tax system through incentives and financial support.
