SDG 16: Peace, Justice & Strong Institutions
SDG 17: Partnerships for the Goals
Institutions: Ministry of Finance
This policy guide examines how developing economies - including insights from India, Pakistan, and Viet Nam - can strengthen fiscal capacity by integrating informal and hard-to-tax sectors into the formal tax system. It underscores that simply expanding the number of registered taxpayers does not ensure meaningful revenue gains, as many newly registered entities contribute minimal compliance.
The guide advocates for a comprehensive, data-driven strategy combining smart enforcement (e.g., algorithmic targeting), presumptive taxation schemes tailored to specific sectors, digitization of transactions, and reforms that offer benefits linked to formalization. Emphasis is placed on balancing enforcement with incentives, and bolstering administrative and political commitment through institutional reforms.
The guide draws on rigorous models and case studies to outline phased actions governments can consider, managing trade-offs between revenue mobilisation, efficiency, and equity. Its insights are especially relevant where the informal economy remains large - encouraging calibrated interventions that build trust, lower compliance costs, and advance broader governance outcomes.
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