The fear of being burdened with taxes remains one of the major reasons why most businesses in the informal sector fail to formalise.
This was revealed in a survey conducted by the University of Ghana Business School and the International Growth Centre, in collaboration with the Registrar of Companies.
In an in-depth interview with over 3,000 Micro Small and Medium Enterprises (MSMEs) in Accra, revealed a widespread perception that registering a business automatically puts them on the tax radar, leading to future financial burdens.
“Many people fear taxation. There is a perception that once your name is in the government system, you will be hunted for taxes. That fear is a big deterrent,” the study noted.
Titled “Formalising the Informal Sector in Ghana,” the study also tested three different strategies to encourage registration with the office of the Registrar of Companies (RoC).
It revealed that offering hands-on-logistical support which will enable Micro Small and Medium Enterprises (MSMEs) complete and submit forms remains one of the most significant ways of formalising informal businesses.
“Helping owners complete and submit forms, increased registration rates by 7.2 percentage points. In contrast, simply waiving the registration fee or educating owners on the benefits of formalisation had no statistically significant impact.” The study detailed.
“Our findings clearly show that the main barrier to formalisation is not the financial cost of registration, but the transaction cost-the time, distance, and complexity of the process itself,” said Prof. Patrick Opoku Asuming, the lead author of the study.
According to the report, despite recent government reforms to digitise and simplify registration, the process remains a significant challenge for many small business owners, who often face long queues, strenuous documentation, and travel to regional capitals.
The research recommended that Registrar of Companies set-up registration services closer to businesses through mobile units and a full online process to reduce travel and waiting time while providing direct logistical assistance, particularly for female-owned and less-educated entrepreneurs
Also, authorities were charged to explore the separation of business registration from tax registration to alleviate the primary fear of business owners.