What you say is a bit confusing.
No. If they do not report their taxes, they are breaking the law. If it were as you say, no self-employed person would declare them.
That's true, like seller in a sideway or micro small businesses, they don't have tax reports to the authorities. But they have to pay to the person in authority in the area (not official from tax office) if i may say so.
However, there is a provision that if someone has ever borrowed a large amount of money from a bank, even though the borrower was not notified by the taxpayer at first, in the end he was exposed to the taxpayer's accumulation of taxes over the years and he didn't know.
Make this clearer because it doesn't make sense.
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So, I once met a person at the tax office, he was a rice miller. He had never been to the tax office before and indeed he often borrowed money from the bank if his capital was insufficient. And yesterday when he was about to borrow again, it turned out that he had to pay taxes first which he don't know from the start. He said "if I have to pay this much, I better not borrow money, because I'm old and don't know about this tax".