Taxing the Informal sector: A case of Dar es Salaam street vendors

Recognizing the crucial role that domestic revenue mobilisation plays in financing sustainable development, governments in developing countries have increased interest in taxing informal businesses to increase domestic revenue collections (Joshi & Ayee, 2008). However, the sector is often characterized by unregistered businesses and poor tax administrative systems, resulting in a substantially reduced tax basis.
The sector forms a large proportion of the economy in both transition and low-income countries. In Africa, for instance, it is recorded that every 8 out of 10 people work informally (ILO, 2018)1. According to Medina et al., (2016), the segment of informal economy in Sub-Saharan Africa (SSA) remains among the largest in the world, even though this share has been gradually declining, as seems to be the case globally. There is significant heterogeneity in the size of informality in SSA, ranging from a low of 20 to 25 percent in Mauritius, South Africa, and Namibia to a high of 50 to 65 percent in Benin, Tanzania, and Nigeria (Medina, et al., 2016).
Looking back on revenue collection from the informal street vendors, in 1983, Dar es Salaam city introduced “Nguvu Kazi” minor license 2 and later abolished in 2004. In July 2000, the Tanzania Revenue Authority (TRA) introduced a new simplified tax schedule for small taxpayers (as well as simplified balance sheets and tax declaration forms), as part of a drive to make it easier for informal sector operators to formalize and start paying taxes.