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Expanding East African tax base will face resistance

Wednesday, June 29, 2016

Significance

Member states' national budgets include plans to increase taxation of the informal economy. Governments have several reasons for broadening tax bases: budget deficits, increasing debts, donor dependency, declining revenue from the formal sector and a desire to improve services and infrastructure.

Impacts

  • Limited state resources will hinder attempts to formalise economies through enforcement alone.
  • Incentives will play an essential role in any attempt to expand the tax base.
  • Unless implemented in an efficient manner, taxation of the informal economy could drain government funds and hurt informal businesses.
  • Successful taxation of the informal sector will fail unless businesses see returns in services or infrastructure.

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