3% tax on small businesses will improve revenue but ‘lazy man’s’ approach – Economist
By Praisebell Rosemond Larbi
Development Economist Dr Felix Larry Essiflie has cautioned that while the Ghana Revenue Authority’s (GRA) new 3 per cent modified taxation model could boost government revenue, it risks imposing further hardship on struggling small and medium-sized enterprises (SMEs).
Speaking to The New Finder, Dr Essiflie described the new tax measure, scheduled to take effect on 5 November 2025, as a “lazy man’s approach” to revenue generation that fails to consider the realities of Ghana’s small business environment.
“Yes, this initiative will improve revenue for the government, which is good. But it is also a lazy man’s approach. Anytime government wants to generate revenue, the first thing it thinks of is tax. This is very, very bad. What about creating systems that allow SMEs to thrive so they can voluntarily contribute more to the economy?” he noted.
The GRA’s new taxation framework will require self-employed individuals, startups, and small businesses earning up to GHS500,000 annually to pay a flat rate of 3 per cent on their income. The measure is aimed at broadening the tax net and enhancing domestic revenue mobilisation.
However, Dr Essiflie questioned the assumptions behind the policy, particularly the claim that most informal businesses earn as much as GHS500,000 annually.
“There needs to be a proper scientific analysis to determine if indeed these SMEs generate that much revenue a year. Many of them are already struggling to break even due to high utility costs, rising inflation, and limited access to credit. How can they pay 3 per cent of earnings when their margins are already so thin?” he argued.
Dr Essilfie emphasised that while the 3 per cent rate may appear small on paper, its impact could be significant for micro and small-scale enterprises that operate on irregular income streams.
“Government should be careful not to introduce measures that suffocate the very businesses that create jobs. Taxation must not kill productivity. We need a balanced approach that supports enterprise growth while ensuring compliance,” the economist said.
Dr Essiflie recommended that the GRA and the Ministry of Finance explore alternative strategies such as digital business registration incentives, targeted tax holidays, and support for business formalisation to expand the tax base sustainably.
“The informal sector must be integrated gradually through education and support, not forced taxation. You don’t build a strong economy by taxing poverty; you build it by empowering businesses to grow,” he stressed.
The economist also warned that without such reforms, the 3 per cent modified tax could ultimately discourage entrepreneurship, reduce profitability, and slow Ghana’s post-recovery economic momentum.
