IRS Goes After the Self-Employed

Kwaku Ababio is 27 and sells fresh coconuts on a pushcart on Ring Road Central in Accra.

Kwaku Ababio makes a net profit of 30,000 cedis each day and works seven days a week. This works out to 900,000 cedis a month and an annual income of 10.8 million cedis but Kwaku Ababio refers to himself as unemployed. And there are many like Ababio throughout the country.

Kwaku Ababio pays no income tax nor market toll because he does not operate from a market. His business is not registered.

And this is where the problem is - the bulk of small-scale businesses across the country, especially in the informal sector are unregistered. Indeed, there is no comprehensive data covering the area. Simply put, they do not, at least officially, exist. Yet the sector is the largest employer in the country

What this means is that the Internal Revenue Service (IRS) can hardly tax them though they make sizeable profits.

Now the Internal Revenue Service (IRS) is sticking its toe in the murky waters of the huge informal sector.

The sector, one of the largest in the economy in terms of wealth and size is the least captured by the country's narrow tax net. The sector employs millions of Ghanaians and non-Ghanaians.

Despite the rhetoric about widening the tax net over the years, little effort has been made to rope in the resourceful informal sector.

That is why Dr. Wayo Seini of the Institute of Statistical, Social and Economic Research (ISSER) faults the hundreds of millions of cedis spent in registering the unemployed last year. He sees the exercise as putting the cart before the horse.

The money could have been used to register and document the undocumented informal sector to enable operators in the sector to be assisted with loans and targeted research to expand their enterprises and for tax purposes, he said. A well-resourced and expanded business can employ more of the unemployed, he added.

At the third quarter review meeting of the National Economic Dialogue (NED) on Wednesday, the IRS said it increased tax revenues from self employed to ?158.7 billion cedis in 2002 from ?108.7 billion the previous year.

During the same period, the number of self-employed within its tax net also increased from 65,000 to 86,000.

In 2000, the IRS collected ?75.3 billion from the self-employed, Theophilus Gaskin of the IRS research unit told the meeting. He said the IRS will set up 23 additional sub-district offices in Greater Accra, Ashanti and Western regions to target the self-employed in the informal sector.

Widening the tax net to capture more potential taxpayers has been the mantra of all administrations.

Yet, the informal sector, the largest employer in terms of numbers is the least taxed.

The IRS was said it was meeting targets set in the 2002 action plan of the National Economic Dialogue.

Essentially the target was to increase revenue collection while eliminating leakages.

The Service also bagged ?369 billion from withholding taxes. The IRS was receiving virtually nothing in the past.

The existing narrow tax net has stifled the government of much needed local resources to embark on development projects.

The IMF and the World Bank have said they don't care about how the government uses its internally generated resources. But they are concerned as long us they continue to lend to the country.

But it actually does not matter how much taxes are collected if what government spends is not strictly monitored and controlled. Reporting on how the government is working to keep the lid on the expenses of ministries and other government agencies, a Finance Ministry representative to the review meeting said the ministry is strictly enforcing quarterly ceilings set up in 2001.

But these sectoral ceilings are not fixed throughout the year - it depends on how much is in the national kitty at any given time.

"While cash expenditures of the government were kept within budget, control of spending commitments remained weak. The new system for cash flow forecasting and ceilings on expenditure commitments was not fully implemented during the third quarter of 2001,"said a Government of Ghana Memorandum of Economic and Financial Policies for 2002 posted on the IMF website.

The NED quarterly review sessions are basically designed to measure the level of implementation of recommendations, measure successes and failures with the view to eliminating identified bottlenecks.

Other institutions that reported are the Customs, Excise and Preventive Service (CEPS), Bank of Ghana, the Ghana Stock Exchange and the Divestiture Implementation Committee (DIC).

The DIC representative, Richard Nana Addo said the DIC has carried out an audit of companies that owe it. The two most indebted companies are the Tema Shipyard bought by the Malaysians and GIHOC.

According to the DIC, Barclays Bank of Ghana, Tema Steel and Coca-Cola Company have confirmed their preparedness to buy government shares in their companies.

The 2003 National Economic Dialogue is fixed for May. The conference will unveil how successful the 2002 NED action plan was.