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.
It is based on a common misunderstanding of the underlying statistics, tax handles, and income distributions within informal sectors.
This policy brief reviews why the ‘goldmine argument’ is false.
Author's summary: Informal sector is not a tax goldmine due to misconceptions about its revenue potential.
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