The Price of Simplicity: Skewed and Regressive Taxation in Accra’s Informal Sector

Nana Akua Anyidoho, Max Gallien, Michael Rogan and Vanessa van den Boogaard

No 18377, Working Papers from Institute of Development Studies, International Centre for Tax and Development

Abstract: International and domestic policymakers have long assumed that informal economies represent an ‘untapped goldmine’ for government coffers. While recent research has highlighted that many informal businesses do pay a range of formal and informal taxes, there has, to date, been little systematic account of their tax burdens. Using a novel dataset of 2,700 informal enterprises in the Accra metropolitan area, we explore the nature and impact of taxation in the informal sector. We find that the majority of informal sector operators pay a range of taxes and fees, which together amount to a significant burden, especially for low earners. These payments are skewed and regressive. Two additional findings emerge in relation to the structure of these taxes. First, the incidence and burden of tax payments is strongly correlated with visibility to the state. Second, taxes and fees are highly regressive, with lower-earning operators paying significantly more in relation to their earnings. These findings have important implications for efforts to tax informal businesses in low- and middle- income countries. The regressivity of efforts to tax the informal sector is often framed as a price worth paying for simplicity. Our study provides both an estimation of this ‘price’, and an underlying argument for collecting this kind of data on taxation of informal enterprises in order to assess real policy impacts.

Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
https://opendocs.ids.ac.uk/opendocs/handle/20.500.12413/18377

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:idq:ictduk:18377

Access Statistics for this paper

More papers in Working Papers from Institute of Development Studies, International Centre for Tax and Development
Bibliographic data for series maintained by CATS administrator ().