The informal economy: a backbone or break bone?
According to the labor force survey, 2017-2018
of ILO, the informal economic sector of Pakistan has 71.7 percent of the
non-agricultural employment, and almost all the agricultural sector has not
registered with the tax authorities of Pakistan. According to World Bank
statistics, 70 percent of the country’s economy is informal. The government has
no record of such a large chunk of the economy. Almost all of the unskilled
laborers that work on daily wages are associated with the informal sector of
the economy that means lower and middle class are earning their bread from the
informal economic sector of Pakistan. With this large informal economy, we can
say that the informal sector is the backbone of Pakistan's employment, but as a
non-taxpayer and undocumented sector, it is a burden on the economy that is
breaking the bones of the economic system of Pakistan and impeding the economic
development.
The informal economy: a backbone or break bone?
The informal economy consists of both legal and
illegal economic activities. All the businesses that are on cash transfers like
SMEs, cottage factories, roadside shops business, venders, service, and
agriculture sector are legal economic activities of the informal sector, while
they are not registered with FBR to pay taxes on their incomes. These businesses
are mostly owned by middle and lower class. They earn a small amount of income
and have little knowledge of documentation, computerization, and all modern
methods of payment and deliveries, that why government departments or banks
have no records of their economic activities. Moreover, they have trust deficit
with the government, being a class that is severely affected by the government
decision and have little comfort from the government service, they think that
if they pay taxes, their money will landed in the pockets of corrupt officials
and public office holders, a perception, yet might be true.
The 30 percent businesses that are registered
and paying taxes are also partially informal, they are hiding their actual
income, input, and output to avoid tax and to gain subsidies from the
government as we saw in sugar and wheat investigation report conducted by joint
investigation teams of different investigating agencies. So if we say there is
no real information about the economic activities in Pakistan with the
government, it will not be wrong, considering the facts.
It is unfortunate for the economy of Pakistan
that all the citizens are using the government service, but a small proportion
of income class is paying taxes that is always causing a budget deficit in
Pakistan and to overcome that budget deficit government has to ask for support
from a national and international financial institution in return of economic
sovereignty as we are witnessing nowadays IMF is on the driving seat of our
economic decision and government has no other option but to nod.
The growth in the informal economy has also
brought many evils with itself like smuggling, for that smuggling corruption in
border management and customs, money laundering, low wages for laborers and no
social securities for laborers. In the informal economy, the main sufferer is
the labor. They get low wages and have no Social Securities. Their data is not
available with the government, so no regulations are maintained, similarly, no
rights are safeguarded or checked for them, which is the great concern for ILO
in all developed countries, including Pakistan
Formalization of informal economy is not an
issue that cannot be solved. The process may be laborious and lengthy but not
impossible. The government needs to build trust between them and the citizen
that their money will be used for their benefit honestly. The corruption in the
revenue departments must be banished as well as the complex process of
documentation and high tax slabs that are also discouraging the people from
disclosing their real income. The tax slabs should be kept at a
taxpayer-friendly level so that people willingly disclose their income and pay
the tax accordingly.
The documentation of all the business and
services is also possible with the coordination of local, provincial, and
federal departments. The local TMAs have all the records of every shop,
service, cart, and even Rishkaw that are running in their vicinity, the excise
has records of cars, the local government has property records and provincial
revenue and estate department has records of each Inch of land. If all these
departments coordinate with each other with zeal, determination and political
will within a short time the records of every citizen of Pakistan with their
economic activity and wealth will be on the table and computers of FBR and then
FBR can easily trace their income and can collect the tax according to their
income.
Tax is
a national responsibility of every citizen and a little contribution toward the
development and progress of the country. If such a large number of people are
not giving tax, it will be impossible for Pakistan to come out of the economic
crisis in which Pakistan is drowning for a long time.
Written by
Ishaq khan
Political
Economist and Freelance writer
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