Tax informality is part of the so-called hidden, informal, submerged, underground, black economy, etc., which is defined as all the legal production of goods and services oriented to the market that are deliberately removed from government control (Schneider 2010), both to avoid the tax burden and Social Security contributions, as well as government regulations and records.

Depending on the approach, it may be motivated by an individual rational decision or be the result of an exclusion from the system. From the decision point of view, there are two essential factors as a cause of this phenomenon:

• the cost benefit of action, and
• the perception of risk arising from the control of TA.

It could be said that an acceptable level of tax burden and a simplification of formal obligations would lead to formalization. But they would be insufficient to solve this problem.

There are countries with the same tax burden and formal obligations, but with different levels of compliance, where the effectiveness of the TA’s control plays a preponderant role, together with the level of governance or institutional practice ( political acceptance of government decisions), social behaviors (fiscal compliance of the taxpayer environment) and their civic or ethical level (tax awareness or moral conscience).

On the other hand, it has been pointed out that other keys are in the application of effective sanctions, but they would also be incomplete if the perception of benefit is not incorporated. That is, to motivate the individual rational decision that more benefits are obtained by being within the system than being kept out of it.

The universe of taxpayers can be classified according to their connection with the TS, namely:

• tax informality,
• special regimes for individual taxpayers and small and medium-sized enterprises,
• General regime.

Informality implies non – compliance with the TS and its TA. It is the most serious of the tax behavior, but paradoxically it is one that generates little government action to find a solution.

Tax policy makers in Lac have been characterized by establishing strategies with varying success in relation to the special regimes and the general regime[1], but have not taken into account the informal sector, a strategy that popular wisdom has defined as “hunting inside the zoo “or “fishing inside the fish tank”.

Beyond great proclamations, very little has been done in practice, and this is demonstrated by the fact that action in most cases has been limited to passively waiting for the expansive economic cycle to incorporate them. Experience shows that this is not enough, since the incorporation of taxpayers is very slow during economic expansion, [2]but very sharp in recession.[3] This pessimistic view implies that nothing can be done in the matter, omitting to generate active state policies.

Another common mistake in analyzing this segment is to consider that it only includes people in the subsistence economy. A fact little considered is that these small taxpayers are supplied by wholesalers and larger industries, which form chains of informality[4] and the service sector has tax significance. Another aggravating factor is that on this black market, the commercialization of smuggled or illegally acquired items proliferates, which also encourages criminal activity.

Tax informality can in turn be classified into a) total, and b) partial. In the first, the taxpayer is not registered, while in the second, he is registered in one or some taxes but not all.

From the above, the following conclusions are drawn:

• The first premise of a TA is to have a reliable registry, because it is the basis of tax management[5], because the lack of registration or its inconsistencies make any effective action impossible.
• Control actions should be generated, both extensive (taxpayers of low fiscal significance) and intensive (taxpayers of high fiscal significance), product of the best exploitation of the data that has the TA.
• The digitalization of the economy, by making possible to track transactions and their payments, is an invaluable source for detecting pockets of informality, but is unfortunately underutilized.
• The electronic invoice[6], which is so beneficial for the control by the TA, is inapplicable to this sector, until it is registered.
• Tax simplification so often demanded and so little implemented, must be a priority in management. This requires open communication channels with business organizations and tax professionals.
• Tax policy should involve the “stick and carrot” strategy, i.e. the perception of risk and the perception of profit.
• If it is more beneficial for the taxpayer to continue in informality, than to register and comply, obviously that would prove that the tax strategy chosen is incorrect.
• The increase in the tax burden on the compliant will only motivate their actions to seek forms of avoidance or evasion, or in severe cases cause economic inactivity.
• It is appropriate to provide fiscal incentives to those sectors that seek to achieve their social inclusion or are the engine of economic development (e.g. knowledge economy) and abrogate those applied in other economic circumstances that today lack sustenance.
• Classic Taxation has its limits. Heterodox taxation should be applied since by applying innovative taxable facts, it would include informal agents in its scope, and if they are constituted as payment on account of orthodox taxes, they would not constitute a tax burden for the compliant taxpayers.
• Within the Orthodox taxation, the application of deductions and levies as payments is imposed on account of the registered[7], and as a single payment of the informal (subject not categorized in VAT, not registered in the IR), when in their transactions they operate with formal taxpayers.
• The general property tax by the central government should be imposed[8], but if constituted as payment on account of the IT, it would only tax the informal or evaders of this tax and would therefore be constituted as a benefit to the compliant taxpayers.

[1] Except El Salvador and Venezuela.
[2] Gómez Sabaíni, Morán (2012), La Informalidad y Tributación en América Latina…”, CEPAL, AECID. Santiago.
[3] Barcena (2020) argued that in LAC there is a 54% of labor informality, and by the end of 2020 a decline in GDP of – 9.1% is expected, and there will be a 15-year decline in poverty (231 million people) and a 30-year decline in extreme poverty (96 million people) @eclal_onu.[4] Ana de la Herrán Piñar (2020), “La economía sumergida infectada por el coronavirus”, ABC, Madrid.
[5] Catalan Gascon (2020), closing speech of the Master of Public Finance and tax and Financial Administration, UNED, IEF, AEAT, Madrid.
[6] In addition to tax registers and other electronic devices for recording and issuing tax invoices and vouchers.
[7] Successful strategy implemented by Carlos Miguel Tacchi in the Public Revenue Secretariat of Argentina in the 1990s.
[8] Today only three countries apply it: Argentina, Colombia, and Uruguay.

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