The Impact Of Widening The Tax Net; The Challenges Encountered By Developing Economies To The Informal Sector

Abstract

Various governments have paid close attention to the issue of broadening the country's revenue base over the years. There has been a great deal of debate regarding it. In emerging countries, domestic tax collections are still falling far behind. When opposed to the statutory rate of 18 per cent, most commodities have a tax collecting effort of less than 5%. Epaphra, (2015). As a result, governments are increasingly reliant on overseas funding. Revenue generation, economic building and sustainability lowering market externalities, regulating trade, stimulating representation, attaining tax equity, and creating governmental responsibility and responsiveness all need the use of taxation. The informal sector has long been seen as a barrier to effective domestic revenue mobilization in developing nations, hence the renewed focus on bringing it within the tax net. This study used a critical literature review to identify the various motivations presented in the literature by various stakeholders (policymakers, scholars, and tax administrators) for the need to administer a tax on this sector and strengthen enforcement, as well as to critically evaluate the plausibility of these motives. Snowballing was used to help with the literature search, which was done using Google Scholar. Increased domestic tax collection would also imply less reliance on a few commodities for revenue, particularly gasoline, which is interconnected with many other industries and could hamper long-term growth.