This indicator measures the proportion of businesses that admit to reporting less than their actual sales figures for tax obligations, a practice often linked to the informal sector. When firms underreport their earnings, it highlights significant issues such as tax evasion, which can lead to reduced government revenue and hinder economic growth. The reasons behind such behaviors may include high tax rates, bureaucratic complexities, or a lack of trust in government institutions. Understanding the prevalence of this practice allows policymakers to devise better strategies, encouraging formalization and compliance. Furthermore, targeting these firms can improve overall tax collection, fostering a healthier economic environment for sustainable development.
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