Taxing Africa’s informal economies: technology’s promise and pitfalls
Taxing Africa’s informal economies: technology’s promise and pitfalls
Publish Date: 2026-02-10 08:48:00
Source Domain: theconversation.com
- A decline in foreign aid and cheaper loans has led African countries to increasingly rely on taxation for development funding.
- African economies’ significant informal sector is an obstacle for taxes as governments struggle to track economic activity or enforce compliance in this sector.
- To raise revenue, governments must either boost taxes from the formal sector or extend taxation to the informal sector, which brings unique challenges.
- Technology can enhance identification, detection, and collection capacities needed for effective taxation; however, it is not a complete solution if poorly implemented.
- Tools like digital ID systems and electronic transaction data can improve tax compliance, as seen in Rwanda’s voluntary VAT compliance using electronic billing.
- Digital financial services, such as mobile money, are being used as tax bases, highlighting the need for governments to balance revenue needs and financial inclusion.
- Although technology aids digitization, its effectiveness is tied to robust digital infrastructure and tax officials’ use of new tools, free from misuse.
- The core challenge in taxation is achieving the balance of maximizing revenue, fairness, and simplicity without unfairly burdening the poorest.
- Successful tax systems evolve to keep pace with digital transformation and require modern policy, skills, and infrastructure to effectively apply tax rules on informal activities.
