Abstract
Abstract Taxation is a fundamental tool for revenue generation, economy building and sustainability, reducing market externalities, regulating trade, stimulating representation and achieving tax justice as well as building state accountability and responsiveness. The informal sector in developing countries has been considered a hindrance to effective domestic revenue mobilisation, hence the rejuvenated focus to bring the sector into the tax baskets. Through a critical literature review, this study sought to identify the varying motivations tabled by the various stakeholders (policymakers, scholars and tax administrators) in literature on the need to administer tax on this sector and to strengthen enforcement and to evaluate the plausibility of these motives critically. Literature search was done through Google scholar and this was also aided by snowballing. The motives were aggregated into five major groups: the magnitude of the sector and revenue implications, growth motive, the governance gains, equity considerations and the boosting of tax morale and compliance in the formal sector. This study, therefore, conducted a profound evaluative analysis of literature on these motivations, pinpointing any voids that future research could address and accordingly sought to contribute to the guidance offered to policymakers on how to improve IS taxation. In order to balance the mobilisation of revenue needs and the sector’s contribution to other government objectives such as those outlined in the United Nations Sustainable Goals 1, 8 and 10 on poverty, decent work and economic growth, and reduced inequalities, governments and policymakers need to make an informed analysis.
Highlights
Public Finance is essential for economic growth in a sustainable manner in any economy as well as to fund government expenditure in infrastructural development, security and fulfil other social obligations
Policy makers need to be aware that formalisation might not lead to higher revenue generation but to high unemployment, reduced poverty reduction efforts and economic development constrained, governments must carefully weigh the motives of IS taxation, their effects on other key objectives of government not just revenue mobilisation
Taxation of the informal sector is regressive to the growth, survival and expansion of these activities as the bulk of the little income they make goes to serving tax obligations
Summary
Public Finance is essential for economic growth in a sustainable manner in any economy as well as to fund government expenditure in infrastructural development, security and fulfil other social obligations. Domestic revenue mobilisation has become topical in contemporary development agendas because of four major aspects (Daude, Gutierrez & Melguizo 2013). These are outlined as: (1) fiscal financing, investment and efforts by governments to fulfil their development targets and plans, need revenue (2) domestic revenue generation to finance economic and social development objectives might be a tool to enrich domestic capacity and capabilities as well as solidify domestic institutional environments (3) state legitimacy, security and national development demands ownership of domestic priorities (4) internal state accountability as well as effective and efficient state building can be improved if citizens are responsible for government financing (Daude et al, 2013:13; Sebele-Mpofu, 2020). Responsiveness and Accountability in Sub-Saharan Africa: Th dynamics of tax bargaining
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