Dec 11, 2018 the informal sector consists of micro, small and medium scale enterprises including traders and artisans and constitutes a significant portion of the nigerian economy. Zimbabwes informal sector largest in africa, second in. The sociopolitical theory of taxation was presented by wagner 1883 33 which stated that so cial and political. Taxing informal sector and revenue generation in nigeria. Application of gis in improving tax revenue from the. Nigeria and other developing countries towards taxing the informal sector, which before now were missing in the tax net. Shifting attention to northern nigeria, where more typical conditions of weak governance and low tax effort apply, i will examine the potential and the limitations of. Informal sector, collateral security, capital, production, economic challenges. Bird, tax policy and economic development baltimore. The informal sector has remained crucial to the nigerian economy over the years in terms of employment and income generation for the teeming urban semiskilled and unskilled labour. The informal sector and taxation in nigeria the barcode. Taxing the informal sector can be through registration and formalisation to push these firms and individuals into the tax net, or it can be through taxing them indirectly.
Many speakers including joseph muvawala, the executive director of the national planning authority npa, said this situation is untenable. According to marjoriitta liimatainen 2002 cited in cross 2004. This paper examined the perceived impacts of taxing the informal sector on revenue generation in nigeria. Udoh acti department of accounting universit of uyo uyo, nigeria 1. Other challenges identified as bedeviling the taxation of the informal sector in nigeria include. However, it has been criticized because gdp is used both as a cause and indicator variable. Uganda has a thriving informal sector up to 80% of the economy, which leaves the burden of paying taxes to the 20% in the formal sector. An empirical investigation from rivers state of nigeria.
Though taxing the booming informal sector presents hope for the economy, but yet it is not without its problem. A recent study by the imf has shown that zimbabwe has the second largest informal sector in the world. Informal sectortaxation asindicatedearlier, theinformal sector in tanzania contributes about40%togdp. The informal sector which accounts for more than sixty percent of economic activities in nigeria has been noted to be a limiting factor in the revenue base of the country. The informal sector in nigeria refers to eco nomic activities in all sectors of the economy that are operated outside the purview of gov ernment regulation. This study therefore examines the level of government support received by tire repair operators. The informal sector consists of firms and individuals who are not fully registered and regulated, and therefore not in the standard tax net. The informal sector in nigeria according to the ilo 1972, the informal sector sector. This reflects implicitly the limitation of any present approaches adopted so far. The realities of taxation of taxation in the informal. Causes and effects ndaka, angella katee tutorial fellow department of public policy and administration, kenyatta university, kenya abstract.
Incorporated as a notforprofit foundation in 1971, and headquartered in geneva, switzerland, the forum is tied to no political, partisan or national interests. Thursday 6 february 2020 09h00 10h00 taxation in the african continent, i. Page 6 of 7 9th ataf country correspondents conference and 1st experts meeting on taxation of the informal sector abuja, nigeria. The realities of taxation of taxation in the informal sector. Taxation of the informal sector actionaid international.
However, this formalinformal overlap comes with risks, especially when it comes to consumables. The primary sector is regular, wage jobs that are taxed and regulatedfor example, heavy industry or whitecollar jobs. Informal sector limits revenue generation for govtcitn. The informal sector consists of micro, small and medium scale enterprises including traders and artisans and constitutes a significant portion of the nigerian economy.
An empirical investigation from the rivers state of nigeria. This article examines the potency of taxing this large population of businesses in nigeria while comparing approaches and strategies adopted in other jurisdictions in achieving credible tax compliance by their respective informal sectors. There is increasing interest from governments but also from informal sector workers themselves in the potential benefits of taxing the informal sector, but little is known about how to do this. Thesestatisticsshouldbetakenin with caution as some of the participants question the definition used to describe the sector. The importance of the informal sector in west africa world. The effect of informal economy on generation of tax revenue in nigeria was examined in this paper. Social networks and the informal economy in nigeria. It often holds the majority of workers and is characterised around the world by lack of formal registration with local or national authorities, high. Nigeria, this paper shows that history, gender, wealth and ethnoreligious identity influence how taxing the informal economy shapes governance outcomes. Evidence from nigeria suggests an inverse relationship between informal economy taxation and political voice, posing the risk that increased taxation will exacerbate social. According to magbagbeola 1996, the informal sector in nigeria refers to economic activities in all sectors of the economy that are operated outside the purview of government regulation. There is growing interest in taxing the informal economy in developing countries. Opportunities and challenges for taxing the informal economy.
This is because the informal sector is by its nature in nigeria very complex and presents challenges of revenue mobilization for tax authorities. Unregistered household enterprises comprise a significant portion of nigerias economy, accounting for as high as 65 percent of gdp, says the international monetary fund imf in a blog article seen by businessamlive. This sector may be invisible, irregular, parallel, nonstructured, backyard, underground, subterranean, unobserved or residual. Iv the informal sector 55 a the main causes of shadow economics 58 b tax implications of the informal. The weight and importance of taxation in the informal sector vizaviz the formal sector is also to highlighted. Application of gis in improving tax revenue from the informal. The informal sector in ghana friedrich ebert foundation.
Dec 07, 2017 the informal sector which accounts for more than sixty percent of economic activities in nigeria has been noted to be a limiting factor in the revenue base of the country. To resolve this discrepancy, it plans to introduce a presumptive tax regime aimed at taxing the rms in the informal sector. Furthermore, presented and discussed in this chapter are the following. The nigeria vast informal sector is estimated to contribute up to 65% of current gross national product vanguard 2010.
Taxing the informal sector and revenue generation in developing countries. Workers who participate in the informal economy are typically classified as. The informal economy is described as the sum total of economic activity that happens outside state regulation, which is neither taxed. In evolving fresh strategies to drive increased compliance and revenue from the informal sector, it may be necessary to pose and seek answers to the following questions is there a need to stratify the informal sector. Taxing the informal economy in nigeria international journal of. Nigerias informal economy accounts for 65% of gdp imf.
Theoretical considerations labour practice situation in nigeria informal sector is captured vividly by dual labour market theory also known as labour market segmentation theory. There has been a lot of focus on the fact that nigerias tax to gdp ratio of about 6. The secondary sector is composed of jobs that have less security than primary work and are not as well regulated, e. Therefore, this paper recommended that nigerian government should boost the tax assessment and collection technique of informal sector in order to increase revenue and also give room for tax. For this reason, the main contribution of this paper is furthering our understanding of the informal sector in african countries and the effects of globalization on this aspect of the labour market. Taxing the informal sector in developing countries scholarly. Tax compliance and representation in zambias informal. Taxation, divided societies and the informal economy in northern nigeria introduction in countries struggling with high levels of poverty and informality, taxing the informal economy has been advocated as a novel means of improving accountability between state and society. Research has tended to focus on the negative impact of informal security providers, but these groups have an essential role in a communitys safety and security. From the study, it was recommended that efforts should be intensified by the government at all levels towards increased collection of non oil tax es especially from the informal sector since this increase has the capacity to growth the economy. Journal of accounting and financial management, 3 1, 4850. Unsurprisingly, health and safety are not a high priority in the informal sector, and it is genuinely difficult to monitor processes. Traders in nigeria have taken various types of action in protest against the informal taxes they have to pay. Indirect taxation of the informal sector the simplest way to tax the informal sector is indirectly.
Only a fifth of people working in the informal sector do so by choice. The importance of the informal sector in west africa. Finance whether public or private, domestic or international is one of the pillars for sustainability of any state. The impact of globalization on the informal sector in africa. In this paper, i analyze the e ect of di erent presumptive taxation policies on the size of the informal sector, tax revenue, output and welfare.
In particular, the addis ababa action agenda outlines that. Taxation of the informal sector2 the formalisation of informal sector activities has received some particular attention in the international development agenda, and taxation is often regarded as a key ingredient joshi et al. The multiple indicatormultiple cause mimic method is a wellestablished tool for measuring informal economic activity. Taxing the informal sector may also be essential to sustain tax. Opportunities and challenges for taxing the informal.
The sector is characterized by underemployment, bad working conditions, uncertain work relationships and low wages. The role of associational membership in south west, nigeria find, read and cite all the research. The informal sector in ghana by clara oseiboateng and edward ampratwum ghana office 80 percent of the ghanaian workforce is employed in the informal sector. It also uses the predictive mean matching pmm method to estimate the. Understanding the informal security sector in nigeria. Only the south american bolivia has a larger black market. This puts nigeria in a class of its own as the united nations assessments suggest that for developing economies the average percentage composition of gdp by informal sector ought to be 41% and for countries in transition. The informal sector is largely characterized by several qualities. This sector may be invisible, irregular, parallel, nonstructured, backyard, under ground, subterranean, unobserved or residual magbagbeola, 1996. In particular, the addis ababa action agenda outlines that the international community. School of economic and business sciences, university of witwatersrand, south africa. The potential for growth and africas informal economy, indicates that by 2035, subsaharan africa will have more workingage people. As these studies suggest that informal firms start out and live out their lives informal, they.
However, developing countries face numerous tax policy challenges when they attempt to establish efficient tax systems. While we continue to lament on the dwindling economy which we operate in nigeria, a lot of solutions to the menace are being presented, a very important known means to sustain and grow any economy is taxation. Informal security actors such as vigilantes play a variety of roles in african communities. The the study employed secondary data and was based on the ability to pay theory of taxation. Taxes are compulsory, unrequited payments to general government. Informal sector 9th ataf country correspondents conference. The informal economy is not taxed on income or revenue and presents an. Over the years in nigeria, there has been growing concern about the problems and expectations of the informal sector in spite of the support services floated by the government. Pdf taxing informal sector and revenue generation in nigeria. The majority of people are living with high income insecurity. They are unreciprocated in the sense that benefits provided by government to taxpayers are not normally in proportion to their payments. This paper examines the case for giving it greater priority, and suggests that policymakers and researchers should focus less on technical design issues, and more on strategies to encourage compliance, and to increase political and institutional incentives for reform.
Little is known, however, about the effects of globalization on the informal economy and how changes in trade and fdi affect employment in this sector. Government assistance for informal sector enterprises in. Given nigerias poor infrastructure, informal market activities ease the cost of doing business. That is, what incentives can be created to improve compliance among currently informal sector firms, how. Ugandas tax structure has been greatly improved in recent years, and it appears to mirror the tax system in other. View the article pdf and any associated supplements and figures for a period of 48 hours. The increased thinking of taxing the informal sector by some major stakeholders in the nigerian tax system. This report provides an analysis of the informal security actors in the nigerian states of plateau, kaduna, and kano and in the capital city. The informal sector forms a significant and growing proportion of the economy in developing countries. This session should also evaluate whether african countries are ready to develop standard regimes for solutions for taxing the informal sector. The world economic forum is an independent international organization committed to improving the state of the world by engaging business, political, academic and other leaders of society to shape global, regional and industry agendas.
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