TAX COMPLIANCE AMONG MSMEs IN GHANA
The most effective solutions to addressing taxation challenges lie in an educational strategy for Ghanaians and Ghanaian businesses entering and participating in the formalized Ghanaian political-economy. Micro, small, and medium enterprises (MSMEs) currently contribute 70% of Ghana’s GDP and have the potential to contribute even more than they do today through increased formalization, which can play a significant role in increasing tax compliance amongst this demographic of private sector institutions.
In Ghana, the greatest opportunity to increase tax compliance is in partnership with MSME owners, who represent the largest portion – 70% - of the informal sector.
Business owners' values align with the needs of growing the nation-state beyond aid– they care about their community and its future and are doing their best to contribute to its growth. However, the majority of business owners struggle with the costs of living, business formalization, and tax compliance. Adding to this, the majority of MSME owners, those employing between 1 and 250 employees locally, have been left out of political, economic and technological conversations, knowledge building, and markets. And, education in these arenas play a significant role in helping to overcome challenges to formalization and barriers that prevent compliance.
To address this, She Grows It™ (SGI), with its partners the Ghana Inclusive Development Research Network (GIDRN) and Fluid Finance Technologies have launched the Pathways to Formalization Program, a new comprehensive tax compliance strategy for MSMEs that promotes education and training to empower Ghanaian business owners to address enterprise formalization.
PATHWAYS TO FORMALIZATION PROGRAM FOR BUSINESS OWNERS
Today, micro, small, and medium business owners are left out of current political, economic, and technological markets in ways that limit the possibility for growth, fiscal accounting, income that supports good business management, and tax contributions paid to the governance structure via the Ghana Revenue Authority (GRA). The Pathways to Formalization Program is a new approach promoting comprehensive educational pathways that address the prohibiting factors to overall ecosystem growth as well as tax compliance. These are the same variables that also prevent local sector ownership and the growth of the local economy. Therefore the program is designed specifically for owners of smaller enterprises that struggle with obtaining and maintaining business formalization.
PATHWAY TO FORMALIZATION FOR AGENCY AND COMMUNITY
A business and industry action plan is needed to address the outstanding gaps that inhibit increased compliance among local businesses in order to support the growth of Ghana’s local to national economies. The Pathways to Formalization Program helps institutions develop necessary skills to increase formalization within the business community through avenues of education, training, and other wrap-around support services. The Informal-to-Formal Enterprise Working Group, established to facilitate the implementation of the Pathways Program, promotes institutions and enterprises that contribute to increasing local business formalization through mentor-protege capacity building in education, training, planning, and the application of other necessary support services.
WHY FORMALIZATION MATTERS TO TAX COMPLIANCE?
With the growing number of investors looking to invest in emerging economies on the African continent, transaction transparency is critical for achieving growth and matching ready-made businesses, ventures, and projects with access to financial capital. SGI examined the largest business type in Ghana - micro, small and medium enterprises - to better understand the opportunities and challenges associated with empowering these institutions. The Pathways to Formalization Program seeks to empower these institutions with tools and resources to formalize their practices and to become more tax compliant in their respective industries of operation in order to maximize growth potential and achieve greater returns. Find further insights in SGIs series of white papers.
FINANCIAL INSTITUTION CULTURE AND POLICY
To support MSME owners in the process of formalizing their enterprise, SGI believes there needs to be more inclusive policies that take a multifaceted programming approach— such as greater fiscal inclusion, tailored investments, improved management of existing financial services, transaction transparency, and price consistency.