Report on Taxation, Gender, and the Informal Sector in the Context of Sustainable Development Goals

Introduction: Fiscal Policy and the 2030 Agenda

The successful implementation of the 2030 Agenda for Sustainable Development is contingent upon robust domestic resource mobilization (DRM), a key target under SDG 17 (Partnerships for the Goals). In lower-income countries, overlapping debt crises and declining aid have intensified the pressure to increase domestic revenues. Consequently, policy has often focused on broadening the tax base by targeting the informal sector. However, this approach presents significant challenges to achieving multiple SDGs, particularly SDG 5 (Gender Equality), SDG 1 (No Poverty), and SDG 10 (Reduced Inequalities). This report analyzes the gendered impacts of informal sector taxation and proposes policy directions aligned with sustainable and equitable development.

Challenges in Taxing the Informal Sector and Implications for SDGs

Misaligned Priorities and Inequitable Outcomes

Current strategies for taxing the informal sector are often inconsistent with the principles of the SDGs. Evidence indicates that the revenue potential from taxing the most vulnerable segments of the informal economy is significantly overstated. This focus often serves as a distraction from more progressive and effective revenue sources, such as high-net-worth individuals and undeclared income within the formal sector. This misallocation of administrative effort undermines progress on SDG 10 (Reduced Inequalities) by placing a disproportionate burden on low-income populations while failing to maximize revenue for public services.

Disproportionate Impacts on Gender Equality (SDG 5)

The informal economy is a critical source of livelihood for the majority of economically active women in lower-income countries. However, women are predominantly concentrated in the lowest-earning and most vulnerable segments, such as own-account work and domestic services. Tax policies that fail to account for these gendered dynamics risk exacerbating inequality and hindering women’s economic empowerment, in direct opposition to the objectives of SDG 5.

The primary challenges include:

• Regressive Tax Regimes: Simplified business taxes, while intended to reduce administrative burdens, often function as regressive instruments. They can impose an oversized impact on women-led enterprises, which typically have lower incomes and profit margins.
• Layered Subnational Taxes: Women are over-represented in informal trading spaces like markets, making them highly susceptible to a range of subnational taxes, levies, and operating fees. These cumulative payments can consume a significant portion of their daily income, contributing to economic precarity and undermining efforts toward SDG 1 (No Poverty) and SDG 8 (Decent Work and Economic Growth).
• Informal Fees and Service Access: Women often bear the brunt of informal user fees for essential services like sanitation and water in market spaces. These “hidden” fiscal costs are highly regressive and place an additional financial strain on women, limiting their capacity for economic advancement.
• Harassment and Corruption: Evidence shows that women in informal trade are particularly vulnerable to harassment, gender-based violence, and corruption from tax and customs officials. This undermines not only gender equality but also the development of fair and accountable institutions as envisioned in SDG 16 (Peace, Justice and Strong Institutions).

Policy Recommendations for Aligning Tax Policy with Sustainable Development

To ensure that DRM strategies contribute positively to the SDGs, a reorientation of tax policy is required. The following recommendations are designed to foster a more equitable, gender-responsive, and effective fiscal system.

1. Target Higher-Income Earners and Enhance Progressivity

   To advance SDG 10 (Reduced Inequalities), tax authorities should shift focus from low-income informal operators to high-capacity earners. This involves using third-party data to identify and tax informally operating professionals (e.g., lawyers, consultants) and implementing more progressive tax reforms aimed at wealth and high incomes in the formal sector. This approach enhances revenue collection while protecting the livelihoods of the most vulnerable, directly supporting SDG 1.

2. Coordinate and Rationalize Subnational Taxes and Fees

   Fragmented and overlapping local taxes create significant burdens, particularly for women traders. Governments must improve coordination between national and sub-national authorities to harmonize and simplify tax administration. Increased transparency and rationalization of these fees are essential for building fair and effective institutions (SDG 16) and reducing the disproportionate fiscal pressure on women (SDG 5).

3. Adopt a Holistic Feminist Fiscal Framework

   Achieving SDG 5 requires a fiscal framework that integrates gender equality into both revenue generation and public expenditure. Such a framework moves beyond revenue targets to actively redress structural gender inequities. Key components include:

   • Gender-Responsive Budgeting: Evaluating how public resources are allocated and ensuring they expand access to services that reduce women’s unpaid care burdens and support their economic participation.
   • Investment in Public Infrastructure: Prioritizing investments in public sanitation, childcare, and transport to mitigate the need for regressive user fees that disproportionately affect women.
   • Expansion of Social Protection: Strengthening social safety nets for informal sector workers to buffer against economic shocks and reduce vulnerability, contributing to both SDG 1 and SDG 10.

The Imperative for Evidence-Based Policy and Research

A fundamental need exists to strengthen the evidence base on tax, gender, and informality. Achieving a more equitable approach to taxation requires significant investment in data collection and analysis to understand the true fiscal burdens faced by women in the informal sector. Such research is critical for designing and monitoring policies that are efficient, inclusive, and aligned with the accountability frameworks of SDG 17, ensuring that DRM efforts do not inadvertently exacerbate the very inequalities the 2030 Agenda seeks to eliminate.

Analysis of SDGs, Targets, and Indicators

1. Which SDGs are addressed or connected to the issues highlighted in the article?

• SDG 1: No Poverty
• SDG 5: Gender Equality
• SDG 8: Decent Work and Economic Growth
• SDG 10: Reduced Inequalities
• SDG 16: Peace, Justice, and Strong Institutions
• SDG 17: Partnerships for the Goals

2. What specific targets under those SDGs can be identified based on the article’s content?

1. SDG 1: No Poverty

   • Target 1.3: Implement nationally appropriate social protection systems and measures for all, including floors, and by 2030 achieve substantial coverage of the poor and the vulnerable. The article supports this target by recommending the expansion of “social protection for lower-income individuals, particularly those in the informal sector” to ease financial pressure on women and support their economic participation.
   • Target 1.4: By 2030, ensure that all men and women, in particular the poor and the vulnerable, have equal rights to economic resources. The article highlights how regressive taxes, such as flat-rate fees for market access or sanitation, can “represent a significant share of women’s incomes, exacerbating economic vulnerability” and limiting their access to economic resources.

2. SDG 5: Gender Equality

   • Target 5.1: End all forms of discrimination against all women and girls everywhere. The article directly addresses this by analyzing how tax systems can have a “disproportionately negative impact on women” and how current tax regimes “can have an oversized impact on women due to their design, administration in practice, and gendered employment patterns.”
   • Target 5.2: Eliminate all forms of violence against all women and girls in the public and private spheres. The article points out 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,” linking fiscal administration directly to violence against women.
   • Target 5.c: Adopt and strengthen sound policies and enforceable legislation for the promotion of gender equality and the empowerment of all women and girls at all levels. The article explicitly recommends adopting a “holistic feminist fiscal framework” and “gender-responsive budgeting” as key policy directions to “actively… redress structural gender inequities embedded in public finance systems.”

3. SDG 8: Decent Work and Economic Growth

   • Target 8.3: Promote development-oriented policies that support productive activities, decent job creation, entrepreneurship, creativity and innovation, and encourage the formalization and growth of micro-, small- and medium-sized enterprises. The article’s entire focus is on the informal sector, which it defines as comprising “informal businesses, informal entrepreneurs, and own-account workers, such as street vendors, traders, and taxi drivers.” It critiques tax policies that hinder rather than support these economic units.
   • Target 8.5: By 2030, achieve full and productive employment and decent work for all women and men… and equal pay for work of equal value. The article notes that “women in lower-income countries are generally concentrated among those sections of informal sectors that are characterized by lower incomes and greater economic vulnerability,” highlighting a gap in achieving decent work for women.

4. SDG 10: Reduced Inequalities

   • Target 10.1: By 2030, progressively achieve and sustain income growth of the bottom 40 per cent of the population at a rate higher than the national average. The article argues against regressive tax systems where “simplified business tax… regimes are often regressive” and informal fees “consume a larger portion of income for low-earning women,” directly contradicting the goal of reducing income inequality.
   • Target 10.4: Adopt fiscal, wage and social protection policies, and progressively achieve greater equality. The core argument of the article is a call to reform fiscal policy. It advocates for a “shift toward greater progressivity across the tax system” and a “feminist fiscal framework” to ensure fiscal systems contribute to both economic and gender equity.

5. SDG 16: Peace, Justice, and Strong Institutions

   • Target 16.5: Substantially reduce corruption and bribery in all their forms. The article mentions that women in the informal sector are vulnerable to “corruption by tax and customs officials,” identifying a specific area where corruption impacts citizens and undermines institutional integrity.
   • Target 16.6: Develop effective, accountable and transparent institutions at all levels. The recommendation to “coordinate and rationalize subnational taxes and fees” and improve “transparency, harmonizing, and simplifying tax policies and administration across levels of government” directly addresses the need for more effective and transparent state institutions.

6. SDG 17: Partnerships for the Goals

   • Target 17.1: Strengthen domestic resource mobilization… to improve domestic capacity for tax and other revenue collection. The article opens by stating that the “overlapping global debt crisis and collapse in aid spending have put additional pressure on domestic resource mobilization in lower-income countries.” The entire piece is an analysis of how to improve this mobilization in an equitable and efficient manner, moving away from a focus on low-income informal workers toward “more productive tax handles” like high-net-worth individuals and wealth.

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

1. For SDG 8 (Decent Work and Economic Growth)

   • Proportion of informal employment in total employment: The article explicitly cites this indicator from the International Labour Organization, stating that the informal sector makes up “54% of employment in low-income countries, and 66% in lower-middle-income countries.” This can be used to track changes in the structure of the labor market.
   • Proportion of women in different types of informal employment: The article implies this indicator by noting that “women are over-represented among household and domestic workers and own-account workers, and under-represented among informal employers and wage workers.” Tracking this disaggregated data would measure progress in reducing gender segregation in the labor market.

2. For SDG 10 (Reduced Inequalities)

   • Proportion of income paid in taxes and fees by low-income women: The article implies this indicator by highlighting that “women traders could spend up to 20% of their daily income on toilet fees alone” and that subnational fees can “represent a significant share of women’s incomes.” Measuring the effective tax rate on the lowest income quintiles, disaggregated by gender, would track the regressivity of the fiscal system.

3. For SDG 5 (Gender Equality)

   • Number of reported incidents of harassment and violence against women by tax officials: The article’s statement that women are “particularly vulnerable to harassment, gender-based violence, and corruption by tax and customs officials” suggests that tracking such incidents is a necessary measure of safety and institutional accountability.
   • Adoption of gender-responsive budgeting and feminist fiscal frameworks: The article recommends these as key policy directions. Their formal adoption by governments can serve as a policy-level indicator of commitment to gender equality in public finance.

4. For SDG 17 (Partnerships for the Goals)

   • Tax revenue collected as a proportion of GDP, disaggregated by source: While the overall indicator is standard (17.1.1), the article implies a need for more granular data. It questions the “revenue potential of taxing the informal sector” and suggests focusing on “high-net-worth individuals” and “the taxation of wealth.” An effective indicator would thus be the proportion of tax revenue collected from different sources (e.g., personal income tax on high earners, corporate tax, wealth tax vs. simplified taxes on small businesses).

4. SDGs, Targets and Indicators Table

Source: brookings.edu