Informality, Mobile Phone Penetration and Tax Revenue in Sub-saharan Africa

Abstract

As part of the Sustainable Development Goals (SDGs), emphasis is placed on the necessity to reinforce resource mobilisation domestically and expand revenue collection with respect to the first target of SDG 17. However, sub-Sharan Africa (SSA) is losing significant amount of its revenue as a result of the large size of the informal sector in the various economies. The study examines the effect of informality on tax revenue in SSA and the moderating role of mobile phone penetration. The system Generalised Methods of Moments (GMM) approach was used on 26 SSA countries over a 11-year period. Findings from the study showed that informality has a significant and negative impact on tax revenue in SSA, whereas mobile phone penetration has a significant and positive impact on tax revenue. Again, mobile phone penetration is effective in playing the moderating role on informality to affect tax revenue in SSA. Based on the findings, the study recommends that strengthening the special government agencies established and tasked with identifying, registering, educating, and advising all informal sector operators on how to keep accurate records, market their goods, access cheap financing, among others, will help them feel recognized and will encourage voluntary compliance with regard to paying taxes. Also, the study recommends that there should be some form of consumer education by governments together with telecommunications agencies in order to help improve awareness on the benefits of using mobile phone to transact businesses and the ease of payment of taxes through the usage of mobile phones.