Working Paper
Domestic revenue mobilization and informality

Effective domestic revenue mobilization has gained renewed urgency, especially in the light of the need to recover from the COVID-19 pandemic. In taxation debates, the ‘informal sectors’ have hitherto been assumed to be a part of the problem and implicitly mistaken for lucrative tax bases.

First, I critically interrogate current conceptualizations of informality to highlight how the informality that materially affects revenue mobilization goes beyond the hitherto narrow focus on the visible informal sectors. I then demonstrate that informality is only one among many factors negatively associated with tax revenue mobilization in sub-Saharan Africa.

I also maintain that better scores on government quality and technology adoption in government systems can play a role in mitigating informality, but a limited one because deeper structural factors sustain informality.

I argue for a re-articulation of the concept of informality when it is included in revenue mobilization research, including frank discussions on perennial measurement and data quality issues.

Simultaneity in policy strategies is necessary, given that informality is multifaceted. It seems more appropriate to prioritize the securing of livelihoods and the building of local fiscal contracts, including on a quid-pro-quo basis, than tax surveillance, especially given that those who operate in shadow economies tend to be outside national safety nets.