Taxation of the informal sector: Outcomes of formalization, transparency and efficiency of informal SMEs?

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Abstract

The objective of this paper is to determine the impact of informal sector taxation on the formalization, transparency and performance of small and medium-sized enterprises (SMEs) operating informally in the Cameroonian context. The study examines in detail the various issues related to informal sector taxation. To achieve this objective, an inductive approach was adopted. Semi-structured interviews were conducted with the managers of 12 informal SMEs randomly selected in the cities of Yaoundé and Douala, Cameroon. The results revealed mixed impacts of informal sector taxation on the formalization, transparency and performance of the interviewed SMEs. Indeed, while some managers expressed strong concerns and even disbelief regarding the detrimental impact of informal sector taxation on the survival of their businesses (Zogning, 2023), others, on the other hand, tended to encourage it, indicating that it is a guarantee of formalization transparency and performance of their businesses (Okombi, 2023), but not without expressing a real need for support from government authorities. These findings therefore call on governments to seriously consider strengthening communication on taxation of informal SMEs and to take into account the country’s socio-economic context when implementing this policy.

Keywords: Taxation, Formalization, Transparency, Informal SMEs, Performance

Authors’ individual contribution: Conceptualization — P.C.M.; Methodology — J.R.M.; Software — J.R.M; Validation — P.C.M. and J.R.M.; Formal Analysis — P.C.M. and J.R.M.; Investigation — J.R.M.; Resources — P.C.M. and J.R.M.; Data Curation — J.R.M.; Writing — Original Draft — P.C.M.; Writing — Review & Editing — P.C.M.; Visualization — P.C.M. and J.R.M.; Supervision — P.C.M.; Funding Acquisition — P.C.M. and J.R.M.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: D83, G24, H26

Received: 05.12.2024
Revised: 14.02.2025; 28.03.2025
Accepted: 11.04.2025
Published online: 16.04.2025

How to cite this paper: Mbama, P. C., & Mfelam, J. R. (2025). Taxation of the informal sector: Outcomes of formalization, transparency and efficiency of informal SMEs? Business Performance Review, 3(1), 17–26. https://doi.org/10.22495/bprv3i1p2