Africa’s informal sector already pays—just not always to the state, and rarely in ways that are fair, transparent, or growth-enhancing. Designing “pro-poor” revenue strategies is possible, but only if governments stop treating every street-vendor as a potential income-tax file and start asking who inside the informal economy actually has taxable capacity, what they already pay in fees and bribes, and which public services they receive in return.

1. The elephant in the fiscal room

Sub-Saharan Africa is the most informal region on earth: 25–65 % of GDP and up to 90 % of total employment sit outside the standard reach of value-added or income taxes.
With debt service absorbing more than 20 % of budget revenues in half of African countries, ministries of finance are under intense pressure to “broaden the base.” The politically convenient villain is the roadside tailor or market woman who allegedly “doesn’t pay tax.”

Yet the stylised facts are wrong.

• Representative surveys in Accra show that 70 % of informal operators already pay at least one formal levy—market tolls, trading permits, business registration fees, or presumptive turnover tax—while simultaneously paying informal “taxes” (bribes) to police and market marshals.
• In Uganda, micro-enterprises surrender up to 14 % of their turnover in local fees and cess, a higher effective rate than many formal-sector limited companies.
• Across the continent, small firms classified as “taxpayers” often generate zero revenue for the treasury; they are “unproductive registrants” kept on the roll so that tax offices can hit deceptively high registration targets.

In short, the average informal worker is not a free-rider; she is over-taxed in small, regressive instalments and under-served in public goods.

2. Why yesterday’s toolkit fails

2.1 Mass-registration drives

Promise: Put every enterprise into the electronic tax register.
Reality: Between 60 % and 90 % of new micro-registrations never file a return; they merely clutter the system and waste administrative resources.

2.2 One-size-fits-all presumptive taxes

Promise: A simple turnover-based schedule replaces complex bookkeeping.
Reality: Flat or turnover-linked presumptive regimes are inherently regressive; a woman selling tomatoes on a 5% margin can pay the same rate as a wholesaler on 30% margins. Because assessments are often collected by third-party “revenue collectors” who pocket side-payments, the poorest operators face the highest effective burden

.

2.3 Formality-first conditionality

Promise: Pay tax → get a tax ID → access credit → grow.
Reality: Credit uptake among newly registered micro-firms is statistically insignificant; meanwhile extra compliance costs push some operators back into complete informality or out of business entirely.

3. Principles for a pro-poor revenue strategy

Evidence from Ghana, Senegal, Uganda and Zimbabwe points to five design principles:

1. Target capacity, not head-count
   Focus audits and higher-rate presumptive levies on the top 10–15 % of informal firms—those with turnover above the VAT threshold or with clear signs of capital accumulation.
2. Make the informal tax visible
   Consolidate the current mosaic of market dues, permit fees and cess into a single “local business levy” with a published rate schedule. Visibility builds trust; transparency reduces extortion.
3. Link payment to services in real time
   Rwanda’s “Kigali Market One-Stop Centre” allocates 30 % of daily stall fees to waste collection and security inside the same market. Compliance rose from 42 % to 78 % in two years, with women traders leading the shift.
4. Use sector-specific proxies
   Tailor tax objects to activity: number of seats for hair salons, kilos of fish off-loaded for mongers, taxi-route permits for ride-hailing motorcycles. Proxies are harder to manipulate than self-declared turnover and cheaper to verify.
5. Co-write the rules with informal associations
   Where chambers of market women or transport unions co-designed the levy, both revenue yields and taxpayer morale improved (WIEGO pilots in Accra and Dakar).

4. How much money are we talking about?

A cautious, model-based exercise for ten African economies shows that moving from blanket presumptive taxes to a capacity-sensitive schedule (zero rate for nano-enterprises, 5 % for high-turnover informal firms) could:

• Add 0.4–0.9 % of GDP in new central-government revenue, and
• Increase local government own-source funding by 15–25 % without raising the overall burden on the poorest quintile of operators.

The simulation is conservative; it assumes only 50 % compliance among top-tier informal firms, well below the 70 % already achieved in Kigali markets.

5. The political economy hurdle

The biggest obstacle is not technical; it is political.

• Blame-shifting: It suits elites to argue that “the informal sector doesn’t pay” rather than tackle base erosion by multinationals and extractive concessions.
• Revenue-farming: Many local governments still auction tax-collection contracts to private agents who maximise short-term yield, not long-term trust.
• Gender bias: Women dominate the lowest-margin informal niches; when presumptive taxes bite, the gender gap in net business income widens.

Reformers therefore need allies outside finance ministries—local governments, informal worker associations, and, crucially, small-business voters who can punish extortionate tax practices at the ballot box.

6. A 5-step road-map for policy makers

7. The verdict

Africa can finance more of its future from internal sources, but only if it stops hunting the mythical “hidden goldmine” inside every street kiosk.
A fair informal-sector tax system is not about squeezing an extra dollar out of a mango seller; it is about recognising who already pays, eliminating the regressivity of myriad micro-levies, and building a visible social contract that ties tax to tangible services.

Done right, the informal sector becomes a bridge—rather than a barrier—to the continent’s fiscal self-reliance. Done wrong, and the poor will keep paying, just not to the state.

References

ICTD & ATAF, “Taxing Informal Economies: Practices, Challenges & Ways Forward,” 2025-06-11.

ScienceDirect, “The taxed informal economy: Fiscal burdens and inequality in Accra,” 2025-01-14.

ICTD, “ICTD launches new collaborative project exploring tax policy in Ghana’s informal sector,” 2025-02-28.

NIH, “Tax obsessions: Taxpayer registration and the ‘informal sector’ in sub-Saharan Africa,” 2017-06-30.

WIEGO, “Tax Justice and the Informal Economy,” 2021-08.

IJEPO, “Tax compliance and informal sector dynamics in Sub-Saharan Africa,” 2025-04-28.

IMF eLibrary, “The Informal Economy in Sub-Saharan Africa.”