Taxing the informal sector: targeting music and video discs sellers at Lusaka city market

Abstract

The study was designed to explore the challenges and factors affecting government from taxing the informal sector. A mixed methods study design was adopted and 60 traders were enrolled in the study. A short survey questionnaire and in-depth interviews were used to collect data for this study. Quantitative data was analysed using SPSS version 16 and qualitative data was analysed using content analysis. It was not expected that the traders would not be aware of any tax. In this sample, all the traders were not aware of withholding and turnover taxes. They were however aware of Domestic VAT and Base Tax. The payment of domestic tax (n = 35; 58.7%) was higher than that of Base tax (n = 14; 23.3%. N = 14 (68%) paid Base tax leaving n = 9 (32%) who were not. Regarding domestic tax, only n = 2 (8.6%) were not paying this tax as compared to n = 33 (91.4%) who did. Compliance was associated with costs of punishment. Others paid tax because they saw it as a moral obligation while others were compelled to pay tax because they had trusted in the government in terms of its manifesto and the services it was offering. As for evasion, the level of knowledge played a significant role in paying tax among these traders. Some traders opted to pay some taxes whereas other paid both. They cited unfairness in the prescription of amounts to be paid as well as persons to pay. They found it justifying to evade paying taxes or under declare taxes as they fall due. Others did not see any need to trust the government as services were not top and there was a lot of corruption. The study concludes that the high number of traders and the variability and mobility in their operations, is likely to make it difficult for even the most capable tax authorities to effectively administer these taxes. Education campaigns that raise awareness about the benefits that result from the taxes collected, and about the efforts made by tax authorities to reduce unfairness (such as introducing low but graduated tax rates according to turnover for instance), may also improve tax morale and ultimately revenue collection. Keywords: Informal Sector, Music and Video Discs sellers, Tax, Lusaka City Market