Constructing Compliance: Reducing Tax Evasion Among Market Traders in Ghana

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. First the research team conducted focus groups and survey activities in three markets in Ghana to understand whether providing public services can increase tax compliance. Their findings show 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.

Pivoting their focus toward the poor performance of tax collectors as a potential cause of low tax revenue, the research team attempted to test a grassroots auditing system. Phone surveys with market traders showed patterns of substantial tax collector absenteeism. The researchers delivered these results to the local assembly, which has supervisory power over tax collectors. However, tax collector attendance fell after this intervention in the markets under the authority of the assembly, and rose in a market not under its authority, clearly signaling that this approach is unlikely to be an effective governance mechanism in this context.