ELECTRONIC TAX COLLECTION SYSTEMS AND REVENUE GENERATION IN THE INFORMAL SECTOR

The informal sector represents a significant component of developing economies, yet its contribution to tax revenue remains disproportionately low due to systemic challenges in traditional collection methods. This study examined the impact of electronic tax collection systems on revenue generation from the informal sector, with a specific focus on Sub-Saharan African economies. The research was guided by three specific objectives: (i) to assess the effect of electronic payment systems on tax compliance among informal sector operators; (ii) to evaluate the influence of digital transaction monitoring on revenue collection efficiency; and (iii) to examine the moderating role of digital literacy in the relationship between electronic tax systems and revenue generation. Drawing on the Technology Acceptance Model (Davis, 1989) and Diffusion of Innovation Theory, the study employed a mixed-methods research design, combining quantitative surveys of 384 informal sector operators across selected regions with qualitative interviews of tax authority officials. The findings revealed that electronic payment systems have a significant positive effect on tax compliance among informal sector operators (? = 0.476, p < 0.05), consistent with recent findings in similar contexts. Digital transaction monitoring demonstrated a strong positive correlation with reduced tax gaps (r = 0.354, p < 0.05), supporting the effectiveness of real-time transaction visibility for revenue enhancement. Furthermore, digital literacy was found to significantly moderate the relationship between electronic tax systems and revenue generation (? = 0.19, p = 0.037), indicating that system effectiveness depends critically on user capabilities. The study also identified critical implementation challenges, including technological infrastructure gaps, low digital literacy rates, and taxpayer distrust of digital systems. The research concludes that electronic tax collection systems hold substantial potential for enhancing revenue generation from the informal sector, but their effectiveness is contingent upon complementary investments in digital infrastructure, taxpayer education, and system transparency. The study recommends a phased implementation approach that prioritizes mobile-based solutions, integration with existing payment platforms, and the provision of tangible benefits linked to tax compliance.
Keywords: Electronic tax collection, informal sector, revenue generation, digital compliance, tax administration, mobile money