As shutdowns to slow the spread of the coronavirus continue across the Global South, researchers say workers in informal economies are bearing the brunt of the crisis while receiving less assistance from relief efforts.
An April 16 virtual roundtable organized by the International Centre for Tax and Development discussed how tax measures miss informal workers and how taxation can be leveraged to provide more support for the most vulnerable workers.
Informal workers include the self-employed, domestic workers, home-based workers, laborers, street vendors, waste pickers, retail workers, and others outside the formal economy. Several countries, like Brazil and India, whose economies are over 50 percent informal, have discussed targeted solutions like cash transfers and other social benefits to help informal workers during the COVID-19 outbreak.
Kate Meagher, associate professor in development studies at the London School of Economics, said the material effects of the coronavirus crisis “are falling hardest on the poor.” Many informal workers don’t have tax records to qualify for VAT refunds and extensions of income tax return filing deadlines. By virtue of their informal status, these workers also don’t show up on national registers used to dole out cash transfers and other COVID-19 relief measures, she said.
The voices of informal workers are missing from the relief conversation, said Umair Javed, assistant professor of sociology at the Lahore University of Management Sciences in Pakistan.
Javed said that in Pakistan, relief measures like food distribution, utility bill deferment, and cash transfers rely on existing poverty databases or self-enrollment, much of which is web based. This excludes a large portion of informal workers who don’t have internet access, fixed addresses, or an existing registration with the state. He said the most effective way to help informal workers is to expand relief for utility fees, market taxes and fees, and mobile money taxes.
Rachel Moussié, deputy director of the social protection program at WIEGO, said that cash transfers are most effective if governments partner with local labor organizations and advocacy groups to target specific populations that may be missed on a large bureaucratic scale.
Addressing the idea that informal workers don’t pay their fair share of taxes, Meagher said that “sometimes people get caught up in definitions and fail to recognize that most informal actors already pay tax.” While many workers fall outside direct taxation, she said, they often contribute in other ways, whether through licensing fees or market dues.
During the COVID-19 crisis and beyond, governments should work to consider these informal networks and taxes as formal structures, said Gerard McCarthy, a postdoctoral fellow at the National University of Singapore’s Asia Research Institute. In turn, the most vulnerable workers would receive more support in recognition of the labor and capital they contribute to the economy, he said.
Javed noted that governments should be careful of overtaxing at-risk populations to make up for revenue shortfalls in times of crisis.
There is a fixation with “widening the tax base by focusing attention on vulnerable workers,” Meagher said, but this ignores the significant tax contributions middle- and upper-income workers in the formal economy can provide to struggling workers.
Meagher said the COVID-19 crisis has exposed how governments often pick and choose whether to mobilize economic relief funds for vulnerable populations. “Money can be constantly mobilized through a progressive tax structure . . . It’s more a question of priorities than lack of resources,” she said.