Working Paper 233
As governments in lower-income countries confront tight fiscal space, rising service demands, and large informal sectors, knowing the true costs and returns of commonly used simplified or presumptive taxes is essential to building equitable and effective revenue systems. This paper provides the first systematic estimate of the cost effectiveness of a presumptive tax in a lower-income country, using Ghana’s Tax Stamp as a case study.
We combine an original survey of 51 Taxpayer Service Centres (TSCs), measuring staff time and non-staff inputs devoted to the Tax Stamp, with TSC-level revenue data. We find that revenues are small in absolute and relative terms. By contrast, reported collection costs are substantial and dominated by salaries, with non-staff costs led by transport and fuel. Aggregating across reporting offices, we estimate that in 2024 the cost of administering the Tax Stamp was roughly nine times the revenue it generated. Even benchmarking against the regime’s 2019 peak and adjusting for inflation suggest that even then costs likely exceeded, or at best approached, collections.
We also document urban–rural differences, showing higher revenues and higher salary costs in urban TSCs and higher non-staff costs in rural TSCs. The findings imply that, for very small and dispersed taxpayers, presumptive, lump-sum designs can be intrinsically cost-inefficient, even under relatively capable administration.
We argue that Ghana – and countries with similar regimes – should raise or introduce meaningful thresholds, sharply limit the scope of lump-sum presumptive taxes, or retire them entirely, and pursue the non-revenue aims often ascribed to these regimes (tax education, trust, and future compliance) through targeted, lower-cost interventions better aligned with equity and administrative capacity.
