Informal Sector and Tax Compliance: The Role of Associational Membership in South West, Nigeria

Abstract

This paper identifies the viability of trade unions and associations in informal sector as agents for state tax collection and their labour absorptive capacity using a field survey of 600 artisans selected from three states (Ekiti, Ondo and Oyo) in the South West region of Nigeria. It reveals that although the informal sector is marginalized with a weak voice in centralized policy making, it has allowed a large proportion of the population to escape extreme poverty through its economic activities. Using logit regression, the result indicated that associational members in informal sectors are strong and showcase a positively significant relationship towards ensuring tax compliance among tax payers. The paper recommends the integration of informal sectors into the formal economic mainstream of Nigeria with the usage of trade associations as agent of tax collection and further recommends the functioning of effective public service delivery by government in a transparent and accountable government towards ensuring tax compliance among taxpayers.