Despite an emerging consensus on the need to tax the informal sector, little is known about how to do it. Traditional understandings of the problem point to administrative and political constraints. First, the tax bureaucracies of many developing country governments do not have the capacity to implement, monitor and enforce taxation. Second, as the informal sector forms a substantial vote bank for politicians, taxing this sector remains politically sensitive. A case study from Ghana nevertheless suggests that there are real possibilities to tax the informal sector. Since 1987, the Ghanaian government has delegated the responsibility for collecting income tax from informal passenger transportation operators to their unions, primarily the Ghana Private Road Transport Union (GPRTU). Interestingly, the GPRTU's role in income tax collection originated in the politics of its corporatist relationship with the Jerry Rawlings regime (1981-2000). The resulting system of taxation has been a relatively stable relationship between two main actors with strong incentives to cooperate.
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A. Joshi and J. Ayee. TAXING FOR THE STATE? IDS Bulletin (2002) 33 (3) 1-9. [DOI: 10.1111/j.1759-5436.2002.tb00030.x]