Why the Informal Sector Is Not a Tax Goldmine - Institute of Development Studies

Why the Informal Sector Is Not a Tax Goldmine

The promise of untapped revenue is a much-repeated argument for more aggressive and broader taxation of informal economies.

Referencing the large size of informal sectors and uncaptured income, as well as limited revenues generated from informal sector specific tax handles, the argument suggests that informality represents a ‘goldmine’ of untaxed revenue.

The ‘goldmine argument’ is false.

This policy brief reviews why the ‘goldmine argument’ is false, based on a common misunderstanding of the underlying statistics, tax handles, and income distributions within informal sectors.

Author's summary: Informal sector is not a tax goldmine.

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Institute of Development Studies Institute of Development Studies — 2025-10-28

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