Uche Usim, Abuja
Revenue administrators in Africa have described taxing the informal sector as a politically unpopular and operationally-challenging task.
They argued that because influential politicians tend to shield them since their votes will be needed to achieve their ambition makes their job a tough one.
This was even as the Executive Secretary of the African Tax Administration Forum (ATAF), Mr. Lorgan Watt, stated that over the past four years, the body has helped eight member countries recover $1 billion in taxes, $300 million of which was already in the bank.
The tax administrators raised the alarm through the Executive Chairman, Federal Inland Revenue Service (FIRS), Mr. Mohammed Nami, at the 9th Country Correspondents meeting and ATAF 1st Experts meeting on taxation of the informal sector held in Abuja on Tuesday.
According to him, “taxing the informal sector is viewed as politically unpopular and politicians are unwilling to risk losing the high number of votes represented in the sector. This is because politicians promise informal workers protection from taxation in exchange for their votes.”
The FIRS boss, while frowning at the development also noted that the informal sector mostly operates on a cash basis and maintains poor or no accounting records which makes taxing them a herculean task.
“Most of the businesses in the sector are also small and fragmented, making it inefficient for the revenue administrations to enforce compliance.”
Nami, however, stated that African tax administrators under ATAF are meeting to design ways to drag the operators of informal businesses into the tax net.
To support the planned capture of the informal sector into the tax net, Nami noted that “taxing the informal sector may also be a way of promoting good governance and political accountability of the State because tax strengthens the social contract between the citizens and the government. Thus, informal businesses that contribute to tax revenues are likely to assert their rights to receive certain services from government, thereby ensuring accountability.”
Paying taxes he said is likely “to promote responsiveness by the state to the needs of the informal sector in a bid to encourage voluntary compliance. It is also likely to encourage collective action, collective political engagement and bargaining by the informal sector.”
Nami stated that “if Africa is to reduce its budget deficits and increase revenue mobilization, it must widen its tax base and the informal sector provides the opportunity to do so.”
On his part, Watt said that the world was currently discussing how to tax the digital economy.