The informal sector forms a significant and growing proportion of the economy in developing countries. There is increasing interest - from governments but also from informal sector workers themselves - in the potential benefits of taxing the informal sector, but little is known about how to do this. It is commonly assumed that there are two main constraints: administrative and logistical problems, and political obstacles (the informal sector forms an important vote bank for politicians). However, the experience in Ghana, where the Ghana Private Road Transport Union (GPRTU) has been collecting taxes from informal workers on behalf of the government since 1987, suggests that, in certain contexts, these problems can be overcome. The case is of particular interest because, contrary to prevailing views that political interference leads to inefficiency in the public service, success was intricately linked to politics. But the arrangement outlived the particular political circumstances in which it was initiated. The case also offers an example of administrative innovation which could be of wider interest in taxing the informal sector. The conclusion highlights the generic relevance of the Ghanaian case.
This paper is a short summary of an article published in IDS Bulletin, vol. 33, no.3. For information on how to access the full article, see the Bulletin Issue at the IDS Bookshop. See also this output record.
Brighton, UK: Institute of Development Studies, 2 pp.
Research Summary 14, Taxing for the state? Politics, revenue and the informal sector in Ghana.