AN ASSESSMENT INTO THE  CHALLENGES OF GOVERNMENT IN ADMINISTERING TAX TO THE INFORMAL BUSINESSES SECTOR IN IDENAU MUNICIPAL, CAMEROON

CHAPTER ONE

INTRODUCTION

Background of the study

Tax authorities in developing nations may have significant challenges in collecting money from the informal sector due to the vast number of prospective taxpayers, the difficulty in identifying and pursuing "hidden" entrepreneurs, and small-scale enterprises. Additionally, taxpayers in the informal sector often have low taxable earnings, thus their revenue potential is rather limited (Bird, 2015). Rural regions or those inhabited by small-scale vendors operating at or below the poverty line are common sites for informal sector operations (Bird, 2015). As a result, tax administrations have typically neglected to prioritize the taxation of informal sector firms due to the low revenue "value for money" (Udoh, 2015). This neglect may also be related to equity concerns, as low-income informal firms bear a disproportionate share of taxation (Joshi et al., 2014). Since many developing nations have inadequate data availability and quality, it can be conceptually difficult to quantify the direct income implications of taxing the informal sector and the accompanying expenses. Taxation in the informal sector gives informal businesses a say in how their money is spent by the state and may help foster a growing feeling of ownership and democratic engagement in government. In turn, taxpayers have a social norm to pay their taxes, so the state has an incentive to show that it is responsive and accountable to them (Cantens, 2019; Feeny & Bastiaens, 2020). 

Feeny & Bastiaens, (2020) is one of many writers who have addressed the importance of the informal sector to regional economic growth. "Informal sector" may mean different things to different people, writers, and organizations. Torado (2000) provided a definition of the "informal sector" as an economic grouping that is not subject to government regulations or arrangements. This sector is characterised by small competitive firms, petty retail and services, labor-intensive methods, free entry, and market-determined factor and product prices. It also includes self-employment, such as home production and petty trading, and wage employment, such as casual labour, contract labour, and piecework.  Idenau township, situated in the Southwest Region of Cameroon, is distinguished for a thriving informal sector, consisting of street sellers, craftsmen, small-scale merchants, and other self-employed persons. These enterprises are critical for fulfilling the varied requirements of local communities, offering products and services in sectors such as food, clothes, transportation, and home necessities. Nevertheless, the casual character of these businesses poses distinctive obstacles for the management of taxes and the generation of income (Nkamleu & Kiendrebeogo, 2019). Previous studies indicate that informal businesses in Cameroon encounter multiple challenges when it comes to fulfilling their tax responsibilities. These obstacles include a lack of knowledge and understanding about taxes, intricate tax laws, limited availability of financial services, and a lack of trust in government institutions (Mekonnen, 2018; Schneider et al., 2018). In addition, socio-economic issues such as poverty, informality, and economic instability make tax compliance more difficult for informal enterprises (Asiedu & Freeman, 2019). Notwithstanding these obstacles, the implementation of efficient tax management is essential for the long-term economic growth, delivery of public services, and investment in infrastructure in the municipality of Idenau. Hence, it is crucial to evaluate the difficulties encountered by government authorities in managing taxes for the informal business sector and propose possible policy changes and administrative tactics to improve tax compliance and revenue generation. Therefore, the study assess challenges of government in administering tax to the informal businesses sector in Idenau municipal, Cameroon. 

1.2 Statement of the problem

The informal business sector in Idenau municipal, Cameroon, makes a substantial contribution to the economy. However, the administration of taxes in this sector has several obstacles. Informal enterprises, which make up a significant part of the local economy, often function without adhering to official regulatory systems. This poses challenges for the government in terms of collecting taxes and enforcing compliance (Cantens, 2019; Feeny & Bastiaens, 2020). The absence of precise data and documentation for informal firms creates difficulties in the assessment of taxes, impeding the collection of money for public services and the development of infrastructure (Asiedu & Freeman, 2019). In addition, the socio-economic features of the informal company sector, such as a significant degree of informality, a lack of financial knowledge, and unpredictable revenue patterns, provide further challenges for efficient tax management (Mekonnen, 2018; Nkamleu & Kiendrebeogo, 2019). Moreover, the current tax rules and administrative processes may not effectively cater to the specific requirements and situations of informal enterprises, leading to low rates of compliance and widespread practices of tax evasion (Bahl & Martinez-Vazquez, 2017; Cockburn & Devarajan, 2016). The main issue is the inefficiency of the government's tax administration for informal businesses in Idenau municipal, Cameroon. This problem hampers revenue collection, creates unfair competition with formal enterprises, and restricts the potential for sustainable economic development (De Soto, 2017; Schneider et al., 2018). Hence, the study assess challenges of government in administering tax to the informal businesses sector in Idenau municipal, Cameroon. 

1.3 Objective of the study

The broad objective of the study is to assess challenges of government in administering tax to the informal businesses sector in Idenau municipal, Cameroon. The specific objectives is as follows:

Assess the level of tax compliance among businesses in the informal sector in Idenau municipal.

Examine how the administration of tax influences the compliance behavior of informal businesses in Idenau municipal.

Evaluate the difficulties of tax authorities in administering taxes to informal businesses.

Examine the strategies employed by tax authorities to enforce compliance among informal businesses in Idenau municipal.

1.4 Research questions

The following questions have been prepared for the following

What is the level of tax compliance among businesses in the informal sector in Idenau municipal?

How has the administration of tax influences the compliance behavior of informal businesses in Idenau municipal?

What are the difficulties of tax authorities in administering taxes to informal businesses?

What are the strategies employed by tax authorities to enforce compliance among informal businesses in Idenau municipal?

1. 5   Significance of the Study

The findings of the study will be significant to the following

Cameroon Revenue Agency: The study will help the management of Cameroon Revenue Authority to identify the factors which affect the taxation of the informal sector and help strengthen the identified weak areas to achieve their goals and remain to be a leading organization with which other organizations can benchmark against. Academic Contribution: The information gathered will help other researchers to advance their understanding on the findings that have been made and improve on them. It will also act as a basis for further references and a source of literature review.

1.6   Scope  of the Study

The study focuses on challenges of government in administering tax to the informal businesses sector in Idenau municipal, Cameroon. Empirically, the study will assess the level of tax compliance among operators in the informal sector in Idenau municipal, examine how the administration of tax influences the compliance behavior of informal businesses in Idenau municipal,  evaluate the difficulties of tax authorities in administering taxes to informal businesses and examine the strategies employed by tax authorities to enforce compliance among informal businesses in Idenau municipal.

Geographically, the study is delimited to Idenau municipal, Cameroon.

1.7    Limitations of the Study

Like in every human endeavour, the researchers encountered slight constraints while carrying out the study. Insufficient funds tend to impede the efficiency of the researcher in sourcing for the relevant materials, literature, or information and in the process of data collection (internet, questionnaire, and interview), which is why the researcher resorted to a moderate choice of sample size. More so, the researcher will simultaneously engage in this study with other academic work. As a result, the amount of time spent on research will be reduced.

1.8Definitions of Terms

Informal Business Sector: Refers to economic activities and enterprises that operate outside formal regulatory frameworks and typically lack legal recognition, formal registration, or compliance with taxation and labor regulations. These businesses often engage in small-scale, unregistered, and cash-based transactions, and they may include street vendors, artisans, small-scale traders, and other self-employed individuals.

Tax Administration: The process of implementing and enforcing tax laws and regulations by government authorities or agencies. Tax administration involves various activities, including taxpayer registration, tax assessment, collection of taxes, taxpayer services, compliance enforcement, and dispute resolution. Effective tax administration ensures the efficient and equitable collection of taxes while promoting voluntary compliance among taxpayers.

Challenges: Refers to obstacles, difficulties, or problems encountered in the process of administering taxes to the informal business sector in Idenau municipal, Cameroon. These challenges may include but are not limited to, low tax compliance rates, inadequate tax policies and administrative mechanisms, lack of tax awareness and education, limited access to financial services, informal sector dynamics, and socio-economic factors influencing tax behavior.

Government: The political authority or governing body responsible for making and enforcing laws, regulations, and policies within a specific jurisdiction, such as Idenau municipal, Cameroon. In the context of this study, "government" refers to the local or municipal government entities and agencies involved in tax administration, revenue collection, economic development, and regulatory oversight of businesses, including informal enterprises.

Tax Compliance: The extent to which taxpayers adhere to tax laws, regulations, and reporting requirements set forth by government authorities. Tax compliance encompasses timely and accurate filing of tax returns, payment of taxes owed, maintenance of adequate records and documentation, and cooperation with tax authorities during audits and investigations