On 10 May, the IMF released its Sub-Saharan Africa economic outlook, Restarting the Growth Engine. The report is available (in English and French) on the IMF’s website. The report features a comprehensive examination of the informal sector in Sub-Saharan Africa, with the IMF estimating that the informal sector contributes 25%-65% of GDP and 30%-90% of nonagricultural employment. From a domestic revenue mobilization perspective, this significant portion of Sub-Saharan African economies represents potential budget revenues. Institutional challenges remain, however, when it comes to encouraging the conversion of the informal sector into the formal sector. A large tax burden and overly cumbersome compliance requirements are likely to have the paradoxical effect of encouraging economic activity to remain in the informal sector. The transformation of digital technologies and services in many Sub-Saharan Africa economies presents opportunities for converting the informal sector, while not creating onerous tax or administrative compliance burdens.
These topics will be further explored as technical sessions in ITIC’s Africa Tax Dialogue later this year, including examination of successful country case studies.
Dan Witt is President of the International Tax and Investment Center (ITIC).