The taxed informal economy: Fiscal burdens and inequality in Accra
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Abstract
The common assumption that informal economies are untaxed has underpinned arguments that they represent an ‘untapped goldmine’ for government coffers. However, there has been limited empirical engagement with this assumption. While some studies have highlighted that many informal businesses pay both formal and informal taxes, there has been little systematic accounting of these payments. Using a novel dataset of 2,700 informal enterprises in the Accra metropolitan area in Ghana, this article presents the first geographically representative account of the nature, distribution and impact of taxation in an urban informal sector. We find that the majority of informal sector operators in this context pay a range of taxes and fees, which together amount to a significant burden, especially for low earners. Two key findings emerge in relation to the structure of these taxes. First, the incidence and burden of tax payments is highly uneven and strongly correlated with visibility to the state, suggesting that taxation is driven more by patterns of state enforcement than the choices of informal operators. 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 both our conception of informal businesses and efforts to tax informal businesses in low- and middle-income countries.
Nana is an Associate Professor at the Institute of Statistical, Social and Economic Research (ISSER) and the Director of the Centre for Social Policy Studies (CSPS), both at the University of Ghana. Her research areas focus on social policy and social development.
Max Gallien is a Research Fellow at the ICTD. His research specialises in the politics of informal and illegal economies, the political economy of the Middle East and North Africa and development politics. He completed his PhD at the London School of Economics. Max co-leads the informality and taxation programme with Vanessa, as well as the ICTD’s capacity building programme.
Michael Rogan is a Research Associate in WIEGO’s Urban Policies Programme. His work centres on statistical analyses of earnings and status in employment in the informal economy, and he leads WIEGO’s research on taxation in the informal economy. Based at Rhodes University in South Africa, Michael works in the Neil Aggett Labour Studies Unit and is an Associate Professor in the Department of Economics & Economic History. He holds a BA in international studies from the University of Washington in Seattle and an MA and PhD in development studies from the University of KwaZulu-Natal in South Africa.
Vanessa van den Boogaard is a Research Fellow at the ICTD and a Senior Research Associate at the Munk School of Global Affairs and Public Policy at the University of Toronto. She completed her PhD thesis on informal revenue generation and statebuilding in Sierra Leone, and has ongoing research on the topic in the Democratic Republic of the Congo and Somalia. Vanessa leads the ICTD’s new programme on civil society engagement in tax reform and co-leads the research programme on informal taxation.
Citation: Anyidoho, N. A.; Gallien, M.; Rogan, M. and van den Boogaard, V. (2024) The taxed informal economy: Fiscal burdens and inequality in Accra, World Development, 187, DOI: 10.1016/j.worlddev.2024.106879.
