Tax Informality and gender equity in lower-income countries

The overlapping global debt crisis and collapse in aid spending have put additional pressure on domestic resource mobilization in lower-income countries. Alongside measures like digitalization and the rationalization of tax exemptions, international and domestic policymakers have often highlighted the need to broaden the tax net in lower-income countries, particularly within the informal sector, as a way to meet revenue needs.¹ The informal sector in this brief refers to unincorporated economic units that produce goods or services primarily for income generation but are not formally recognized by government authorities as distinct market producers or by the respective national regulatory authorities (e.g., registrar general or similar registries).² It includes informal businesses, informal entrepreneurs, and own-account workers, such as street vendors, traders, and taxi drivers.

Increasing evidence, however, suggests that the revenue potential of taxing the informal sector—particularly among the poor—is significantly overstated. This is in part because revenue projections are based on flawed estimates, common policy mechanisms are not well-targeted at high-income earners in the informal sector, and projections don’t take into account the range of taxes that informal enterprises already pay.³

Some have argued that what has sustained policy attention on taxing the informal sector is that it acts as an effective distraction from more thorny potential targets for revenue administration, such as high-net-worth individuals.⁴ We argue that greater policy attention should be paid to areas where greater revenue gains may be made, rather than focusing on taxing informality. The term informal sector itself is often poorly understood, defined, and measured. Given its ambiguity, especially with regard to taxation, it is deeply doubtful whether this is a useful or productive concept in guiding tax policy and administration.⁵ However, we recognize that for the time being, lower-income governments will continue to discuss it on these terms and to try to extract more revenue in the informal sector.

The vast majority of economically active women in lower-income countries are working in informal sectors.⁶ Consequently, understanding the way informal sectors are taxed is essential to understanding how women engage with tax systems. Moreover, understanding these systems is crucial to ensuring that current efforts to mobilize domestic resources and expand tax takes in an era of increasing fiscal crises do not result in burdens being shifted toward lower-income women. It is therefore important to draw attention to the gendered impacts of taxing the informal sector and to consider ways to mitigate negative impacts on gender equity.

This brief provides an overview of recent research on taxation, gender, and informality in lower-income countries. In doing so, it provides an overview of the gendered impacts of the administration of simplified taxes collected by national-level revenue authorities, as well as sub-national and informal taxes and fees. Considering the gendered effects that result from existing systems, it maps out policy directions to support greater gender and income equity. Governments will likely continue to feel and exert pressure to tax informal firms and own-account workers. Doing so in a way that is both more productive from a revenue perspective and sensitive to the impacts on gender equality will require a redirection of efforts toward more productive tax handles; a better approach to targeting of informal sector taxes; more research and data collection; and, underpinning this, a feminist fiscal framework—one that examines both how revenue is raised and how it is spent, and that actively seeks to redress structural gender inequities embedded in public finance systems.

The gendered impacts of taxing informal sectors

Informal sector operators, often made up of small firms and own-account workers, represent the majority of the labor forces of lower-income countries, as well as the majority of their economic units. According to the International Labour Organization’s latest statistical update, they make up 54% of employment in low-income countries, and 66% in lower-middle-income countries.⁷ While statistics on their exact share of gross domestic products are difficult to construct, they make substantial contributions to economies and value chains across the world.

Across the world, informal sectors exhibit significant gender differences in terms of labor force participation, distribution across sub-sectors such as retail or manufacturing, and role within informal enterprises and employment types. At the same time, women in lower-income countries are generally concentrated among those sections of informal sectors that are characterized by lower incomes and greater economic vulnerability. For instance, in many low-income countries, women are over-represented among household and domestic workers and own-account workers, and under-represented among informal employers and wage workers.⁸ These gendered dynamics in the make-up of informal sectors, in turn, have critical implications for how strategies to tax informal operators impact men and women differently.

A common way of taxing informal operators, including both firms and own-account workers, is through simplified business tax regimes at the national level.⁹ A simplified business tax is a regime for small businesses or sole proprietors that reduces reporting requirements and uses simple methods for assessment. While these regimes cover a large number of taxpayers, they often generate limited revenue, which is a pattern observed across countries and regions.¹⁰ These regimes are often regressive and can have an oversized impact on women due to their design, administration in practice, and gendered employment patterns across sectors.¹¹

While these national-level taxes may thus have gendered impacts, subnational taxes and fees—such as market levies, licensing charges, and operating permits—also play a central role in how informal operators interact with the tax system, while often having disproportionately negative impacts on women.¹² These fees are commonly layered on top of national-level taxes, creating a significant cumulative and sometimes opaque fiscal burden for those operating informally.

Because women are disproportionately represented in informal trading spaces, especially markets, they are often more frequently subject to these subnational charges. In many African cities, for instance, daily market fees can rival or even exceed the effective tax rates faced by formal enterprises—yet these costs fall primarily on female traders, who often dominate in market spaces, earn less than their male counterparts, and sell lower-value goods.¹³ As a result, these ostensibly small payments can represent a significant share of women’s incomes, exacerbating economic vulnerability. A growing body of evidence also shows that women working in markets and informal cross-border trade are particularly vulnerable to harassment, gender-based violence, and corruption by tax and customs officials.¹⁴

In addition to formal subnational taxes, many informal operators face user fees and informal taxes that carry significant gendered implications.¹⁵ These payments, which are often required to access basic public goods and services—such as sanitation, water, or market infrastructure—tend to fall heavily on women due to both their lower average earnings and their higher reliance on such services.¹⁶ For example, research from Dar es Salaam’s markets found that women traders could spend up to 20% of their daily income on toilet fees alone, a burden not faced by men to the same degree, given differences in available public sanitation options.¹⁷ Such hidden fiscal costs are typically levied at a flat rate and are thus regressive, meaning they consume a larger portion of income for low-earning women than for others.

The problem of the gendered impacts of both subnational and informal taxation is compounded by the reality that because they fall outside the scope of formal national tax systems, these payments are often invisible in policy debates. Recognizing the prevalence of subnational and informal taxes and fees as part of women’s fiscal realities as well as their interaction with the tax system is therefore essential to building equitable tax and service delivery systems—and to avoiding reforms that inadvertently increase financial strain on women in the informal sector.

Policy recommendations

Efforts to promote gender equality in taxation must critically engage with how informal sector taxes are designed and implemented. One key point here is to refocus attention more broadly away from informal sector taxation, which is both commonly inequitable and inefficient from a revenue perspective, and toward more progressive taxes aimed at higher-income operators, as well as on the taxation of wealth and of undeclared income within the formal sector. Here, a shift toward greater progressivity across the tax system is essential not only for equity, but also for revenue mobilization. At the same time, there are concrete changes that can be made to current policies that tax informal sectors. To ensure that tax systems do not reinforce or deepen gender inequalities, four key policy directions emerge.

1. Target higher income earners in the informal sector: Current approaches to taxing informal sectors often disproportionately capture low-income operators while overlooking higher income earners in the informal sector. To promote both equity and increase revenue, tax authorities should prioritize better targeting of higher-income earners within the informal sector. This includes leveraging third-party data sources, such as financial transactions or property records, to identify individuals and enterprises with greater capacity to pay. Moreover, sector-specific approaches are essential: For example, professionals like lawyers, doctors, or consultants, who operate informally in many contexts, require tailored enforcement strategies distinct from those used for small-scale market vendors.¹⁸ Shifting focus toward these higher-capacity earners—and relying on data-driven and risk-based registration and auditing efforts—can help ease regressive burdens and improve revenue collection without deepening gender inequalities. At the same time, reforms are needed to improve the equity and efficiency of simplified tax regimes.¹⁹
2. Coordinate and rationalize subnational taxes and fees: Creating more equitable tax systems requires addressing the gendered burdens created by fragmented and overlapping local taxes. Improving transparency, harmonizing, and simplifying tax policies and administration across levels of government, and ensuring better coordination between national and local authorities can help reduce the cumulative burdens faced by informal women operators.²⁰ Grounding reforms in the lived experiences of these taxpayers is key to ensuring subnational taxation supports, rather than hindering, equity outcomes.
3. Adopt a holistic feminist fiscal framework: Advancing gender equality in taxation requires moving beyond revenue-centric approaches to address both how revenue is raised and how it is spent. A feminist fiscal framework involves integrating gender equality considerations into all stages of tax and expenditure policy.²¹ This includes interrogating how tax policy and administration affect men and women differently and recognizing that well-designed, progressive taxation can promote both income and gender equality. Beyond considering how revenue is raised, a feminist approach also requires evaluating how public resources are allocated and accessed. This may include adopting gender-responsive budgeting, which can help expand access to public services, reduce unpaid care burdens, and address structural inequalities that limit women’s economic participation. For example, women in the informal sector often face steep barriers to accessing essential services due to the prevalence of user fees and informal charges. To mitigate these inequities, governments should prioritize investments in public infrastructure—such as sanitation, childcare, and transport—and subsidize access to key services, while also expanding social protection for lower-income individuals, particularly those in the informal sector. Such interventions can ease financial pressure on women, support their economic participation, and contribute to a more inclusive and equitable tax system. In this way, a feminist fiscal framework centers the lived realities of women and ensures that fiscal systems contribute to both economic and gender equity.

To support these policy directions, there is a fundamental need to strengthen the evidence base through targeted research on tax, gender, and informality. Realizing a more equitable approach to taxing informal sectors—and ensuring that proposed reforms do not exacerbate existing gender inequalities—requires significant investment in new data and analysis. Despite growing interest in these issues, major gaps remain in our understanding of the real fiscal burdens faced by informal operators, the cumulative impact of overlapping payments, and the specific ways these burdens differ by gender. Such research is essential to designing tax systems that are not only more efficient and inclusive but also responsive to the lived experiences of women in the informal sector. Without this evidence, efforts to improve equity in tax policy will remain incomplete—and potentially misguided.