Constructing Compliance: Reducing Tax Evasion Among Market Traders in Ghana
Photo credit: Erik Kathaway via Unsplash
Policy Context
Low-income countries raise less tax revenue proportional to GDP and have lower tax compliance than high-income countries. For countries in Sub-Saharan Africa, one common source of tax revenue are the taxes traders pay to operate in local markets. This pilot study sought to understand the drivers of limited tax revenue collection among market traders in Ghana’s Central Region. To address poor performance of tax collectors as a potential cause of low tax revenue, the research team piloted a grassroots auditing system.
Study Design
The research team first conducted a round of focus groups and survey activities in three markets in Ghana to understand whether providing public services can increase tax compliance. Following this round of surveying, the team piloted a grassroots auditing intervention by presenting information on absenteeism to the district assembly, which has supervisory power over tax collectors. The team then collected a second round of telephone surveys to measure the effects of this intervention.
Results and Policy Lessons
The focus group and surveys showed that urban traders recognized the connection between taxes and public goods more frequently than rural market traders. While some traders indicated that more responsive and engaged local officials would make them more willing to pay taxes, traders did not commonly report that they wanted information on government spending. Importantly, the surveys also revealed substantial absenteeism of tax collectors.
Following the informational intervention about tax collector absenteeism, the district assembly met with revenue collector personnel to address the high rates of absenteeism. However, results from the follow-up survey revealed that tax collector attendance fell in the markets under the authority of the assembly and rose in a market not under its authority. These results suggested that this approach was unlikely to be an effective governance mechanism in this context.
