This study examines the relationship between tax policies and informality in Tanzania. Specifically, it analyses how changes in tax policies affect the behaviour of individuals in the labour market and how these changes impact the level of inequality and poverty in Tanzania. Tanzania’s informal economy, accounting for over 60% of employment and nearly 40% of GDP, remains largely outside the tax net, contributing just 1.8% to national tax revenues. Findings reveal that taxing the informal sector may induce higher labour force participation as individuals substitute leisure with work, potentially encouraging a partial shift toward the formal sector. READ ON…!