The Role of Tax Identification Numbers in Formalizing the Informal Sector: A Case Study of Traders in Ibadan
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Background of the Study
The formalization of the informal sector is critical to improving tax compliance, enhancing economic planning, and increasing government revenue. A crucial component of this process is the Tax Identification Number (TIN), a unique identifier assigned to each taxpayer. In Nigeria, the implementation of TIN is part of the government's efforts to bring informal businesses into the formal tax system. This is particularly important in markets like Ibadan, where many traders operate informally (Adegoke & Sule, 2024).
The introduction of TIN aims to streamline the tax system, improve revenue collection, and enhance transparency in the informal sector. However, despite its potential benefits, many traders remain reluctant to register for TIN due to various reasons, including lack of awareness, mistrust of government authorities, and perceived high costs (Ogunwuyi & Eze, 2023). This study examines the role of TIN in formalizing the informal sector, focusing on traders in Ibadan and the barriers to successful implementation.
Statement of the Problem
The informal sector in Ibadan, comprising a large proportion of small-scale traders, remains largely outside the formal tax system. Despite efforts to implement TIN registration, many traders continue to operate without it, hindering the government's efforts to expand the tax base and enhance revenue collection. Factors such as inadequate awareness, complex registration processes, and a lack of trust in the system limit the successful adoption of TIN by informal sector traders (Akinlolu & Chijioke, 2023).
This study seeks to explore the role of TIN in formalizing the informal sector in Ibadan, identifying challenges and proposing solutions to improve registration rates among traders.
Objectives of the Study
- To evaluate the role of TIN in formalizing the informal sector in Ibadan.
- To identify the challenges faced by traders in registering for TIN.
- To recommend strategies to improve TIN adoption and formalization of the informal sector.
Research Questions
- How does the implementation of TIN contribute to the formalization of the informal sector in Ibadan?
- What challenges do traders in Ibadan face in registering for TIN?
- What strategies can enhance the adoption of TIN among informal sector traders in Ibadan?
Research Hypotheses
- H₀: The implementation of TIN does not significantly contribute to the formalization of the informal sector in Ibadan.
- H₀: Challenges faced by traders do not significantly affect TIN registration rates in Ibadan.
- H₀: Proposed strategies will not significantly improve the adoption of TIN in the informal sector.
Scope and Limitations of the Study
This study focuses on informal sector traders in Ibadan and evaluates TIN registration between 2020 and 2025. Limitations include challenges in reaching a representative sample of traders and potential biases in self-reported data.
Definitions of Terms
- Tax Identification Number (TIN): A unique number assigned to each taxpayer for identification and tracking by tax authorities.
- Informal Sector: Economic activities that are not regulated by the formal government systems.
- Formalization: The process of bringing informal businesses under formal economic and regulatory frameworks.
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