Feature Image: African Union
As the world celebrates International Youth Day, it is high time African governments rethought informal sector taxation for the benefit of its youthful populace. The theme for this year "From Clicks to Progress: Youth Digital Pathways for Sustainable Development" resonates with the need for innovative solutions to age-old problems including informal sector taxation.
The majority of people in Africa rely on the informal sector for their livelihood and it employs the largest portion of the labor force in Sub-Saharan Africa. The informal sector has not made a substantial contribution to domestic resource mobilization in terms of tax payments to the relevant national revenue authorities, notwithstanding the facts regarding the size of the informal sector in Africa. This means that a sizable section of the workforce works in the unregulated informal sector, which is typically untaxed and disproportionately affects young people.
In most cases, it’s not a choice for young people to venture into the informal sector, but a necessity for many. Since there is a dearth of formal jobs in most African nations, entrepreneurship, and informal trade become necessities for existence. Nevertheless, this implies that youths are left out of the social safety net and advantages associated with formal employment. Studies have revealed that just one job is created in the formal sector for every four young people who enter the workforce, leaving a sizable section of the populace to struggle to find employment. Consequently, to find better work opportunities and job creation, Africa's youth have resorted to the unofficial business sector.
Studies have indicated
that there are numerous ways in which the youth of Africa are impacted by not
taxing the informal sector. The informal sector deters formalization when it is
not taxed, which keeps young people in low-paying, insecure jobs without
benefits or job security. Additionally, since untaxed informal sector
operations frequently take place outside of legal frameworks, there is often
inadequate infrastructure—such as inadequate market facilities and
storage—which negatively impacts young people's businesses. Youth in the informal
sector don't have official records, which makes it harder for them to get loans
and impedes the growth and expansion of their businesses. This suggests
that not taxing the unorganized sector forces young people to stay in
low-paying jobs where there are no possibilities for advancement. The
viewpoints of young people on this matter emphasize the necessity of a more
computerized and inclusive tax system.
In light of
International Youth Day, it is wise to take into account the many advantages
that taxing the informal sector offers African youth, such as formalization,
access to benefits, better public services, decreased inequality, economic
growth, and a say in policymaking. It is suggested that digital platforms
be used to ease the load on informal traders and streamline tax compliance. Tax
payments can be made simple with the use of mobile money and e-payment systems,
and data analytics can be used to discover and legitimize unofficial
enterprises.
Additionally, for the
benefit of the youth, taxes must be equitable and open. To achieve this,
policies that support a progressive tax system that accounts for the income of
unregistered vendors should be implemented, guaranteeing that individuals with
higher incomes make greater contributions.
As we commemorate International Youth Day, let us, in light of the perspectives of our youth in Africa, embrace a more digital and inclusive strategy for taxing the informal sector. This has the potential to produce a more just and long-lasting tax structure that encourages digital routes for sustainable development and boosts the expansion of African economies.
