What is the impact of the informal economy on taxation?

What is the impact of the informal economy on taxation?

The informal economy can significantly reduce tax revenues as many transactions go unreported. This leads to a lower tax base.

Can you explain how this affects government services?

Certainly! With reduced tax revenues, governments may struggle to fund essential services like education, healthcare, and infrastructure.

Are there any countries that have successfully addressed this issue?

Yes, some countries have implemented measures like incentivizing formalization and improving tax compliance to tackle this issue.

What are the challenges in taxing the informal economy?

Challenges include lack of data, resistance from informal workers, and the complexity of tracking unregistered businesses.

What strategies can be used to integrate the informal economy into the formal tax system?

Strategies may include simplifying tax processes, providing education on benefits of formalization, and offering tax incentives.