An Examination of PIT and Its Effect on the Informal Sector: A Study of Street Vendors in Port Harcourt
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Background of the Study
Personal Income Tax (PIT) is a critical component of government revenue generation, targeting the income earned by individuals and businesses. In Nigeria, the informal sector accounts for a significant portion of economic activity, contributing about 65% to the Gross Domestic Product (GDP) (National Bureau of Statistics, 2024). Street vendors in cities like Port Harcourt are a prominent feature of this sector, engaging in small-scale trade and services. Despite their economic significance, most street vendors operate outside the formal tax system, leading to a low PIT compliance rate.
Port Harcourt, a bustling metropolis in Rivers State, is characterized by extensive informal trade activities. While the Rivers State Government has made efforts to increase PIT compliance through initiatives like taxpayer education and simplified tax procedures, these have had limited success. According to Eze and Okoro (2023), a significant proportion of street vendors perceive PIT as irrelevant to their scale of operations, exacerbating the compliance gap.
The informal sector's noncompliance with PIT regulations creates challenges for equitable taxation and sustainable revenue generation. Moreover, many street vendors lack awareness of the benefits associated with formal registration, such as access to credit and government support programs. This study seeks to explore the impact of PIT on street vendors in Port Harcourt, highlighting the challenges and opportunities for fostering compliance.
Statement of the Problem
The informal sector’s low PIT compliance remains a significant obstacle to maximizing government revenue in Nigeria. Street vendors in Port Harcourt, who constitute a large portion of this sector, often evade taxes due to limited awareness, distrust in government, and the perceived complexity of the tax system. This noncompliance not only deprives the government of much-needed revenue but also perpetuates an uneven tax burden across economic sectors.
Despite efforts to incorporate informal sector operators into the tax system, compliance among street vendors remains low. Studies by Johnson and Akpan (2024) reveal that less than 20% of street vendors in Port Harcourt are registered for PIT, underscoring the inadequacy of current strategies. The lack of compliance also reflects deeper issues such as the informal sector’s lack of integration into broader economic policies and the government’s inability to enforce tax laws effectively.
Objectives of the Study
- To assess the level of PIT compliance among street vendors in Port Harcourt.
- To identify the challenges influencing PIT compliance in the informal sector.
- To evaluate the impact of PIT on the economic activities of street vendors.
Research Questions
- What is the level of PIT compliance among street vendors in Port Harcourt?
- What challenges affect PIT compliance in the informal sector?
- How does PIT influence the economic activities of street vendors in Port Harcourt?
Research Hypotheses
- H0: PIT compliance among street vendors in Port Harcourt is not significantly low.
- H0: Challenges such as awareness and enforcement do not significantly affect PIT compliance in the informal sector.
- H0: PIT does not have a significant effect on the economic activities of street vendors in Port Harcourt.
Scope and Limitations of the Study
This study focuses on PIT compliance among street vendors in Port Harcourt, examining their awareness, challenges, and the tax’s impact on their businesses. The study covers the period from 2020 to 2025. Limitations include potential difficulties in accessing reliable data due to the transient nature of street vendors and their reluctance to disclose financial information.
Definitions of Terms
- Personal Income Tax (PIT): A tax imposed on the income of individuals and unincorporated businesses.
- Informal Sector: Economic activities that operate without formal registration or regulation.
- Street Vendors: Small-scale traders who sell goods or services in public spaces.
- Tax Compliance: Adherence to tax laws, including registration and payment.
- Port Harcourt: A major city in Rivers State, Nigeria, known for its vibrant informal trade.
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