This working paper offers a broad overview of how informal workers are currently taxed, why there is growing interest in taxing these workers and their enterprises, and whether and how informal workers (particularly the self-employed in the informal sector) should be included in the tax net.
It reviews the main motivations for increased taxation—from revenue generation to building the social contract—and looks at some recent experiences of informal sector taxation in developing countries. Multiple taxation, tax harassment, and (regressive or flat) presumptive taxation are explored in detail.
Finally, the paper presents recent empirical findings from WIEGO’s exploratory work on taxation in the informal economy. Priority research gaps are also identified.