A Decadal Systematic Review of Factors Underlying Tax Compliance in the Informal Sector
A Decadal Systematic Review of Factors Underlying Tax Compliance in the Informal Sector

Summary/Abstract: Urban informality has been a subject of economic discussion for over five decades. Since the late 2000s, renewed interest has been focused on the sector’s rapid growth and frequent operation outside formal economic systems, raising pressing concerns about tax evasion and regulatory compliance. Previous attempts to tax the informal sector often fell short due to a failure to account for its heterogeneity, which distinguishes it from the formal sector. Effective tax collection in the informal sector hinges on operators’ compliance with the tax regime; however, discussions on the determinants of compliance in this context remain limited. This study addresses the need for an effective taxation framework for the informal sector by examining the role of tax compliance in this initiative. This study uses a systematic literature review of papers published between 2015 and 2024 and indexed in Scopus and Web of Science, to investigate the determinants of tax compliance within the informal economy. The findings indicate that compliance determinants can be categorized into governance quality, operational characteristics, tax morale, and the effectiveness of past and existing taxation strategies, with interconnected pathways linking these factors. This study advances the discourse on informal sector taxation in three key ways. First, it outlines tax compliance determinants within a structured framework, providing a basis for statistical analysis. Second, it offers practical insights for flexible, sector-specific taxation approaches. Third, it lays the groundwork for legislative discussions, potentially shaping standalone statutory instruments for formal and informal sectors. Considering the study’s limitations in scope and sampling bias, future research could explore variations within the informal sector through a taxation perspective, examine digital taxation strategies, and investigate the root causes of informality to gain a deeper understanding of their impact on contemporary tax compliance challenges.

• Details
• Contents