The Role of Tax System and Informal Sector in Enhancing Revenue Mobilization in Sub-Saharan Africa

Abstract

Domestic revenue mobilization remains a central challenge for economic growth in Sub-Saharan Africa (SSA), where limited tax coverage, high levels of informality, and institutional weaknesses constrain fiscal capacity. This study investigates the roles of the tax system and the informal sector in shaping revenue mobilization across selected SSA countries between 2010 and 2022. The study is guided by two main objectives: (1) to assess the role of the tax system in enhancing revenue mobilization, and (2) to examine the influence of the informal sector on revenue performance in the SSA context. Adopting a quantitative research design, the study employs a fixed effects panel regression model using secondary data from 10 SSA countries. Key variables include tax system effectiveness, informal sector size, government expenditure, financial inclusion, and political stability. Complementary statistical techniques—such as stationarity tests, multicollinearity checks, and model specification diagnostics—ensure robustness and validity. The results reveal a strong, positive, and statistically significant relationship between the tax system and revenue mobilization, affirming the critical importance of efficient and well-administered tax structures. In contrast, the informal sector’s impact on revenue was found to be statistically insignificant, suggesting that its influence may be mediated by other institutional or technological factors. Political instability had a negative effect, while government expenditure contributed positively. The study underscores the urgent need for SSA governments to reform and digitize tax systems, enhance institutional credibility, and design context-specific strategies to engage the informal sector. For accounting and public finance research, the findings highlight the importance of integrating governance and macroeconomic dynamics in studying revenue performance.