A STUDY ON THE CHALLENGES FACED BY THE GOVERNMENT IN MANAGING TAXATION OF THE INFORMAL BUSINESS SECTOR IN IDENAU MUNICIPAL, CAMEROON

CHAPTER ONE INTRODUCTION 1.1 Background of the Study Taxation is a financial obligation imposed by a government on individuals, businesses, transactions, or properties, with the aim of raising revenue for national development. It is a compulsory contribution—whether termed as duty, customs, excise, levy, or otherwise—that must be paid to the government. While the term “taxation” refers to the process of collecting taxes in a given jurisdiction, “tax administration” covers the broader framework involving the implementation, enforcement, and supervision of tax laws within a country (Bird, 2015). This includes all legal efforts made to ensure the effective functioning of the tax system. According to Carnahan (2015), tax administration plays a crucial role in achieving high levels of taxpayer compliance across various categories. Taxes are essential payments required from individuals and organizations, and they form a core source of government income. These funds are critical for infrastructure development and the provision of essential public services. Moreover, taxation serves as a fiscal tool for ensuring economic stability and the equitable distribution of national wealth (Udoh, 2015). In many developing countries, especially those with large informal economies, taxation is also used to monitor and regulate informal economic activities (Udoh, 2015). As a key component of public finance, taxation is vital to public administration. In the municipality of Idenau, Cameroon, the informal sector plays a significant role in the local economy. It generates employment, income, and contributes to poverty reduction. Despite its importance, taxing this sector presents considerable challenges to government agencies. This is primarily because informal businesses typically operate outside formal regulatory systems, making tax collection and compliance enforcement particularly difficult (Cantens, 2019; Feeny & Bastiaens, 2020). Idenau, located in the Southwest Region of Cameroon, is characterized by a vibrant informal economy made up of street vendors, artisans, small-scale traders, and self-employed individuals. These businesses are instrumental in meeting the day-to-day needs of residents, offering goods and services ranging from food and clothing to transportation and household essentials. However, the unstructured nature of these businesses creates serious hurdles for tax administration and revenue collection (Nkamleu & Kiendrebeogo, 2019). Studies have shown that informal businesses in Cameroon face several barriers to tax compliance. These include limited awareness or understanding of tax obligations, complex tax systems, restricted access to financial services, and a general mistrust in government institutions (Mekonnen, 2018; Schneider et al., 2018). Additionally, broader socio-economic conditions—such as poverty, the prevalence of informal employment, and economic volatility—further complicate efforts to ensure tax compliance within this sector (Asiedu & Freeman, 2019). Despite these challenges, effective tax administration in the informal sector is critical to sustainable economic development, public service delivery, and infrastructure investment in Idenau. Therefore, it is essential to explore the specific difficulties faced by tax authorities in managing informal business taxation and to suggest viable policy reforms and administrative strategies that could enhance tax compliance and boost revenue. This study aims to generate evidence-based insights for policymakers, government agencies, and other relevant stakeholders by conducting a comprehensive assessment of the challenges associated with tax administration in Idenau’s informal sector. The findings could support the design and implementation of targeted solutions aimed at improving tax enforcement, promoting economic inclusion, and fostering long-term growth in the municipality. 1.2 Statement of the Problem The informal business sector significantly contributes to Idenau's local economy. However, government efforts to manage and collect taxes from this sector are met with several obstacles. A large portion of these businesses operate outside formal regulatory frameworks, complicating tax assessment and compliance enforcement (Cantens, 2019; Feeny & Bastiaens, 2020). The absence of accurate records and documentation among informal enterprises hinders proper tax evaluation, ultimately affecting revenue generation for essential public services and infrastructure development (Asiedu & Freeman, 2019). Furthermore, the characteristics of the informal economy—such as high levels of informality, limited financial literacy, and irregular income streams—pose significant challenges to efficient tax management (Mekonnen, 2018; Nkamleu & Kiendrebeogo, 2019). In many cases, existing tax policies and administrative practices are not adequately adapted to address the specific needs and realities of informal businesses, resulting in widespread non-compliance and tax evasion (Bahl & Martinez-Vazquez, 2017; Cockburn & Devarajan, 2016). At the heart of the issue is the ineffectiveness of the government’s tax administration in dealing with the informal business sector in Idenau. This inefficiency not only limits revenue collection but also creates an uneven playing field for formal businesses and restricts opportunities for inclusive and sustainable development (De Soto, 2017; Schneider et al., 2018). Therefore, this study seeks to assess the challenges faced by the government in administering taxes to informal enterprises in Idenau municipal, Cameroon. 1.3 Objectives of the Study The general objective of this research is to examine the challenges faced by the government in administering taxes to the informal business sector in Idenau municipal, Cameroon. The specific objectives are: i. To assess the extent of tax administration in the informal sector of Idenau municipal, Cameroon. ii. To examine how tax administration affects the tax compliance behavior of informal businesses in Idenau municipal, Cameroon. iii. To recommend strategies for improving tax administration in the informal business sector in Idenau municipal, Cameroon. 1.4 Research Questions This study is guided by the following research questions: i. What is the extent of tax administration in the informal sector of Idenau municipal, Cameroon? ii. How does tax administration influence the compliance behavior of informal businesses in Idenau municipal, Cameroon? iii. What strategies can be implemented to improve tax administration in the informal business sector of Idenau municipal, Cameroon? 1.5 Significance of the Study This study holds value for several stakeholders: Cameroon’s Internal Revenue Authorities: Understanding the barriers to tax compliance within the informal sector can help revenue agencies design more effective tax collection systems. This could lead to increased government revenue to support public service delivery, infrastructure projects, and social programs. Academic Community: The research will enrich the academic literature on tax administration and informal economies, particularly within developing countries such as Cameroon. Researchers, scholars, and students interested in public finance, informal sector dynamics, and economic policy will find the findings useful for advancing discussions and further studies in the field. 1.6 Scope of the Study This research is focused on identifying the challenges that the government faces in administering taxes to informal businesses within Idenau municipal, Cameroon. It will specifically investigate the extent of tax administration in the local informal sector, evaluate how tax practices influence business compliance, and propose practical strategies to strengthen tax administration in the informal economy of Idenau. 1.7 Limitations of the Study As with any research endeavor, this study encountered a few limitations. Financial constraints affected the researcher’s ability to gather extensive materials, conduct comprehensive literature reviews, and cover a larger sample size for data collection (through internet research, questionnaires, and interviews). Additionally, the researcher had to balance this study with other academic responsibilities, which reduced the amount of time available for deeper investigation. 1.8 Definition of Terms Informal Business Sector: Refers to economic activities carried out by individuals or groups operating outside the formal legal and regulatory systems. These businesses often lack official registration, do not comply with tax and labor laws, and typically include street vendors, artisans, small-scale traders, and other self-employed individuals. Tax Administration: The process through which government agencies implement, enforce, and manage tax policies and regulations. It includes registering taxpayers, assessing tax liabilities, collecting taxes, offering taxpayer services, ensuring compliance, and resolving disputes. Challenges: These are the specific problems or obstacles encountered in the process of administering taxes to informal businesses in Idenau. They may include low compliance rates, weak tax policies, lack of awareness, limited financial access, and socio-economic constraints. Government: This refers to the political and administrative institutions at the municipal level in Idenau responsible for tax collection, regulation enforcement, and local economic development. Tax Compliance: The degree to which individuals and businesses fulfill their tax obligations according to legal requirements. This includes timely tax filings, correct payments, record keeping, and cooperation with tax authorities during audits REFERENCES Asiedu, E., & Freeman, J. (2019). The Effect of Corruption on Taxation: Evidence from the US States. International Review of Law and Economics, 60, 105851. Bahl, R., & Martinez-Vazquez, J. (2017). The Determinants of Revenue Performance. In The Cambridge Handbook of Technical Standardization Law (pp. 19-49). Cambridge University Press. Cantens, T. (2019). The Informal Economy in Developing Countries: Inclusive Growth and Prosperity. European Journal of Development Research, 31(1), 144-165. Cockburn, J., & Devarajan, S. (2016). Taxation, Corruption, and State Fragility in the Developing World. Journal of International Development, 28(5), 648-664. De Soto, H. (2017). The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else. Basic Books. Feeny, S., & Bastiaens, I. (2020). Informal Sector Entrepreneurship in Africa: Evidence from Informal Wastepickers in South Africa. Journal of Development Studies, 56(6), 1111-1126. Mekonnen, T. (2018). The Taxman Cometh: Behavioural Responses to Taxation. Journal of African Economies, 27(1), 111-138. Nkamleu, G. B., & Kiendrebeogo, Y. (2019). Tax Compliance and Business Environment in Africa: Evidence from Cameroon. African Development Review, 31(2), 186-197. Schneider, F., Buehn, A., & Montenegro, C. E. (2018). Shadow Economies All over the World: New Estimates for 162 Countries from 1999 to 2017. International Economic Journal, 32(2), 192-222. Bird, R. M. (2015). Improving tax administration in developing countries. Journal of Tax Administration, 1(1):23-45. Carnahan, M. (2015). Taxation challenges in developing countries. Asia and Pacific Studies, the Australian National University and Wiley Publishing Asia Pty. Ltd, 2(1):169-182. Udoh, J. E. (2015). Taxing the informal economy in Nigeria: Issues, challenges and opportunities. International Journal of Business and Social Science, 6(10).