Taxing the informal sector: Coping with Coercion in Bamako, Mali

Abstract

AbstractMotivationIn recent years, research has shown that informal workers and businesses in low‐income countries are increasingly taxed by the state. While rarely a significant revenue source, informal sector taxation in highly informalized economies affects a large proportion of the working population. Under such circumstances the question of whether taxing informal economic activity either improves or undermines state–society relations are still debated, particularly in the case of fragile states whose tax systems tend to be characterized by a high degree of coercion towards poor actors.PurposePrevious research has tended to focus on tax evasion and how to increase tax compliance in the informal economy. In this article, we aim to explore how informal sector actors in Bamako, Mali, interact with local tax collectors in various ways with varying levels of agency. On this basis, we develop a broader analytical framework for understanding local government–taxpayer relations.Approach and methodsIn a case study of Mali, a fragile state with violent conflict and a highly informalized economy, we made use of qualitative research methods with semi‐structured interviews and focus group discussions with different actors in the informal economy.FindingsWe find four main modes of interaction: (1) “tax evasion,” where individuals evade or minimize their tax obligations; (2) “tax bargaining,” where groups with limited political resources negotiate with local authorities; (3) “forced taxation,” where disadvantaged groups pay taxes without tangible returns or a voice in protest; and (4) “harsh sanctions” faced by those unable to pay or evade taxes. Informal sector actors show a different capacity for collective action impacting their agency vis‐à‐vis state authorities.Policy implicationsThe informal sector needs to be unpacked in fragile states, focusing on understanding existing fiscal pressures on different informal actors and their various strategies for navigating tax systems. Tax administrations should promote dialogue and trust‐building measures and avoid strategies that exacerbate social division and undermine state–society relations.