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Stream/Area:
-
Subject:
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Paper ID:
10.55041/IJSREM.GSTCOS126
Volume:
10 |
7 |
Jul 2026
Pages:
1-8
Publication Frequency:
Monthly (12 issues per year)
License:International Journal of Scientific Research in Engineering and Management follows the Creative Commons Attribution 4.0 (CC BY 4.0) License, allowing free use and distribution with proper attribution.
MBA
CMR College of Engineering & Technology
The transition of the informal economy into formal frameworks is central to achieving sustainable growth and social justice under United Nations Sustainable Development Goal 8. While indirect tax reforms, notably the Goods and Services Tax (GST) introduced in India on July 1, 2017, have accelerated transactional tracking and expanded fiscal buoyancy, they have simultaneously imposed highly regressive compliance costs on under-resourced small enterprises. This paper investigates the phenomenon of "bounded formalization," wherein micro-enterprises adopt defensive survival strategies—such as strategic under-reporting and labor cost reduction to mitigate administrative overheads. Utilizing empirical survey metrics and macroeconomic data, this study demonstrates that tax enforcement absent integrated social protections has triggered severe labor market disruptions, including an estimated 15.7 million job losses concentrated in labor-intensive sectors. By analyzing Latin American "Monotax" models across Brazil, Argentina, Uruguay, and Mexico, this paper evaluates the viability of unified fiscal-welfare frameworks. The study concludes by proposing an integrated policy pathway for the Global South, emphasizing the administrative harmonization of tax databases with social registries, progressive labor taxation, and the expansion of non-contributory safety nets to secure a balanced transition toward decent work.
KEYWORDS
The formalization of the informal economy is essential for achieving inclusive economic growth, improved productivity, and decent work. However, the experience of GST-driven formalization demonstrates that tax compliance mechanisms alone cannot ensure equitable development. While GST has enhanced transparency, expanded the tax base, and encouraged business registration, it has also imposed significant compliance burdens on micro and small enterprises. These pressures have often resulted in bounded formalization, labor market disruptions, reduced wages, and increased worker vulnerability. Evidence from Latin American Monotax systems shows that formalization is more sustainable when taxation is integrated with social protection and labor welfare measures. Therefore, policymakers should adopt a holistic approach that combines simplified compliance systems, progressive taxation, social security coverage, and institutional coordination. By harmonizing fiscal reforms with worker protections, governments can transform formalization from a revenue-focused exercise into a pathway for social inclusion, decent work, and sustainable development in the Global South.
International Labour Organization. (2024). Integrated approaches for formalization in Asia and the Pacific. ILO Regional Office for Asia and the Pacific. Zenodo. (2025). From Shadows to Spotlight: GST's Role in Uplifting Unorganized Sector Workers. DOI: 10.5281/zenodo.19519130. Global Alliance Against Hunger and Poverty. (2025). Subsidized/Tailored Access to Social Insurance (Monotax, Reduced Contribution Level). Policy Brief Framework. International Journal for Multidisciplinary Research (IJFMR). (2026). Working Environmental Constraint Factors of Informal Workers in Mega Development Projects in Kerala, India. E-ISSN: 2582-2160. International Labour Organization. (2023). From Informal to Formal: A Meta-Analysis of What Triggers the Conversion in Asia. ILO Geneva. International Journal of Research in Finance and Management. (2023). Economic Impact Analysis of GST Implementation on India's Informal Sector. DOI: 10.33545/26175754.2023.v6.i2c.705. Centro Interamericano de Administraciones Tributarias (CIAT). (2023). Monotax: Bridge to Formality and Social Inclusion. CIAT Data Insights. Journal of Emerging Technologies and Innovative Research (JETIR). (2026). GST Compliance Challenges Faced by Small Enterprises in Himachal Pradesh: A Case Study of Rampur Bushahr. International Centre for Tax and Development (ICTD). (2025). Toward Formalisation: Can Simplified Tax and Social Security Contributions Help? DIGITAX Research Series. Zenodo. (2025). GST-Induced Formalisation, Rural Livelihoods, and Social Equity: Evidence from Informal Enterprise Clusters in Kanakapura, Karnataka. DOI: 10.5281/zenodo.19571373.
Publication Date
7/29/2026
Peer Review Type
Double-Blind Peer Review
Review Rounds: 2
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The authors declare no conflict of interest related to this research work.
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