Informal cross border trade and Revenue collection a case of Nakonde

The growth of the informal sector has not matched its growth in tax revenue contributions. The Informal cross border shopping as an element of illegal cross border shopping manifests itself in the form of smuggling. The overall effect of smuggling is the reduction in the level of the revenue collected from trade. The increase in smuggling undermines the set policy objectives because it diverts the normal flow of trade between the trading nations from the formal sector to the informal sector that is very difficult to tax. The second waves of effects are in form of reduction in the domestic tax collection. This effect is as a result of the reduction in the local production. The cheap imports push out the local production from the market. The tax paid by the local companies reduces because their capacity to produce is reduced. The localized distortion of economic activities as low taxation in the informal sector tends to attract entrepreneurs to activities they would not have done if full tax obligations were applied. Therefore, most businesses and individuals would prefer to do their transactions in the informal sector where taxation costs are almost non-existent.