Structuring Parameters for Developing an Informal Sector Taxation Framework for Developing Countries

The debate on urban informality has persisted since the 1970s, mainly driven by Western-oriented perspectives. These early views often limit the development of effective strategies for managing and taxing the informal sector, despite its long-standing presence and distinct operating characteristics. Post-colonial perspectives have shifted the narrative, calling for policies that recognise the informal sector as a central feature of developing economies rather than a deviation from the formal economy. This chapter answers that call by proposing a taxation framework grounded in a database approach inspired by these newer views. While one study developed a prototype database, it has not yet evolved into a full taxation model. Using a scoping literature review, this chapter analyses informal taxation strategies in Sub-Saharan Africa, highlighting key lessons and challenges. Findings show that many policies remain ineffective, often treating the informal sector as secondary to the formal economy. To address this, the chapter recommends five key elements for a better taxation framework: (1) creating a sector database; (2) using activity and criteria; (3) engaging informal institutions; (4) defining shared expectations; and (5) embedding monitoring and evaluation. Despite sampling limitations, this study offers a foundation for building inclusive, context-sensitive frameworks that reflect the realities of informality in developing countries.