GRA’s Modified Taxation Scheme: Driving informal sector tax compliance and SME growth

The era, where many informal sector businesses and workers’ pay taxes when faced with threats of enforcement or coercion, rather than on voluntary basis, has become a collaborative regime between the Ghana Revenue Authority (GRA) and taxpayers in the SMEs sector.

This collaborative approach, adopted by the GRA, is touted as an innovation to position and put the taxpayer in charge of the processes that enhance and ensure that tax payment is done in a simple and friendly manner, devoid of compulsion from the tax regulator, the GRA.

Since its unveiling in late November last year, the Modified Taxation Scheme (MTS), a simplified tax system designed for informal sector workers and small businesses in Ghana, has been contributing significantly to revenue mobilization, particularly with the aim to meet GRA’s GH¢230.13 billion tax target for the year 2026.

The MTS initiative, is part of GRA’s contribution to Ghana’s RESET Agenda, in widening the tax net under the progressive leadership of the Commissioner General of the GRA, Mr Anthony Kwasi Sarpong.

Businesses are progressing and thriving through the MTS - enabling the economy to improve, through a simplified, and efficient implementation of a digitized tax system and a sustained tax education.

Indeed, the deployment of the MTS, is already contributing positive impact towards achieving the total revenue target for 2026 collection, as the first quarter revenue collection for 2026, is 20 percent more than the amount collected in the same period last year.

The foremost priority of the MTS is to replace complex, traditional tax assessments with a "pay-as-you-go" digital approach.

As an abridged tax tool, the MTS simplifies registration and payments for individuals, using presumptive taxes and digital tools to enhance compliance, whilst removing the complex processes of the standard tax system.

This certainly, is a redesigned approach to make filing and paying taxes more practical for informal workers.

Indeed, Ghana’s tax compliance challenges, particularly in the informal sector is well-known. Data from the Ghana Statistical Service Survey, 2023, revealed that the informal sector makes up 80 percent of the country’s workforce. However, its contribution to GDP is just around 30 percent.

This gap, is further and largely driven by complex tax processes, low tax morale, and inadequate tax awareness.

Yet, the Modified Taxation Scheme reflects GRA’s commitment to modernizing Ghana's tax administration in line with current practices.

This scheme introduces simplified technology-driven processes that make compliance more convenient, predictable, and transparent, especially for small and medium enterprises, including individuals who form the backbone of the economy.

By reducing bureaucracy, streamlining registration, payments, and reducing discretion, the Scheme minimises the opportunity for non-compliance and fosters trust between taxpayers and the GRA.

More importantly, the MTS tool, ensures that tax payment becomes as simple as making a money transfer.

For instance, the Scheme, in simple terms, allows individuals and enterprises whose income does not exceed GH¢500,000, which is half a million, to pay a flat rate of 3 percent. Let me give you a hypothetical example.

The above means that an individual or a small enterprise whose income is, for example, GH¢200,000 annually, get to pay GH¢6000 for the whole year. Another example is that, an individual who earns GH¢25,000 annually, gets to pay GH¢750 for the whole year.

The GRA is certain that the Modified Taxation Scheme, has a huge potential to raise revenues, estimating a potential population in this segment to be about 8 million people.

Indeed, the MTS brings a precedent of simplification and convenience to shops and tabletop businesses, enhancing revenue mobilization for national development.

With a resolve to strengthen feedback mechanisms, collaborate with the private sector, and use data-driven insights to enhance compliance and collection of revenue, the GRA sees itself as not only a collector of revenue, but also a partner in national development.

This determination is further deepened by the quest to build a culture where compliance is not feared, but embraced, and where paying taxes is seen as a patriotic contribution to national development.

Demystifying the Modified Taxation Scheme (MTS)

Is this a new tax? Certainly not. This innovation is a form of Personal Income Tax for persons working in the informal sector of the economy, including plumbers, electricians, hairdressers, seamstresses and tailors, mechanics, air conditioner technicians, food vendors, etc.

Who qualifies to pay tax through the MTS?

Small businesses and individuals qualify to register for the MTS, when they are Ghanaian residents, earn income only from businesses (not employment), and from sources within the shores of Ghana, and are not registered for VAT.

Categories of the Modified Taxation Scheme

There are three categories to suit different business sizes:

a. Presumptive Tax Based on Installment (PTI). This category is for businesses with average annual sales not exceeding GH¢20,000 over three consecutive years. In this category, a business or individual pay a fixed tax amount based on income level and type of business activity

b. Presumptive Tax Based on Turnover (PTT). This category is for businesses or individuals with annual sales of more than GH¢20,000 but not exceeding GH¢500,000. In this category, an individual or business, pay a flat rate of 3 percent on total annual sales (turnover).

c. The third category is the Modified Cash Basis (MCB) classification, which is for taxpayers who do not qualify for the presumptive taxes (PTI and PTT).

It works by enabling the taxpayer to pay tax only on profits on earnings, after deducting all allowable business expenses.

Who Does NOT Qualify for Presumptive Tax (PTI/PTT)?

The GRA encourages professionals with formal qualifications (e.g., Lawyers, Engineers, and Accountants), owners of multiple businesses or business outlets, partners in a registered business partnership, and individuals who choose to opt out voluntarily, to instead register under the Modified Cash Basis (MCB) category and honour such tax obligations.

What is needed to register for the MTS?

Registration for the MTS is quick and easy, with the taxpayer requiring a Ghana Card (National ID), Ghana Post GPS Digital Address, Phone Number, Basic Sales Information and a Business Registration or Permit (if it’s available).

How to register for the MTS

The GRA has made it easier for potential taxpayers and individuals to register through any of these methods:

The MTS has been unified as a mobile application and is downloadable from the MTS Taxpayer App from Apple App Store or Google Play Store.

Registration can also be done through in-person visits to the nearest GRA Office or Taxpayer Service Center for assistance, or using the services of a GRA Field Officer, which enables direct registration by a field agent, and or via trade Associations and Unions.

How to Pay Taxes using the MTS

The GRA offers convenient payment options, including the use of a dedicated USSD Code: *880# on mobile phones, or by equally paying directly using the Mobile Money wallet linked to the MTS Taxpayer Mobile App.

Filing Yearly Returns

At the end of the year, the Authority has made it possible for a tax payer or individual to fill a form in the MTS Taxpayer’s App with details of actual sales for the period.

This process, which is called Filing a Return, is critical and important, as it helps the GRA to make a fair assessment of tax situations and ensures that taxpayers are in good standing.

With this year’s revenue collection already in the second quarter, the MTS is certainly the surest bet to increase informal sector tax compliance to meet the GRA’s quest and target to mobilize GH¢230.13 billion.

Under the leadership of Mr. Anthony Sarpong, the GRA, which is considered a human-centred Authority, sees taxpayers as stakeholders who are at the heart of the quest to reform and bring transformation into revenue mobilization.

The GRA is committed to enforce fairly, provide clarity, avoid arbitrary decisions and improve service delivery to its stakeholders.

With the MTS, the Authority counts on all businesses, citizens and residents to ensure voluntary compliance, and also consider the GRA as a collaborative partner, who will however not spare businesses and individuals that seek to undermine its statutory mandate and integrity.

The GRA will keep to its mandate of educating all citizens to know the various taxes, honour such tax obligations and enable us all to build the Ghana we want together.

Elsie Appau- Klu ESQ is a lawyer and Technical Advisor to the Commissioner General of Ghana Revenue Authority.

She also serves as the National Coordinator for the Sustained Tax Education Program and Chairs the Modified Taxation Scheme Implementation Committee.