THE size of Pakistan’s informal economy is estimated to be as much as 56 per cent of the country’s GDP (as of 2019).

[Wood]

That's terrible, the people that form the informal economy are often those who have the least amount of support.

Yes, in India - that was estimated to be a whopping 93% of the workforce

 

[313ghazi]

=========

If I'm in the informal sector, what incentive can the govt bring to make me formalise.

Why should i pay tax, other than a sense of civic duty?

How can the govt make life difficult for me to force me to come into the formal sector?

What hurdles do i face when trying to formalise? What can be done to remove these hurdles?

The govt needs to answer these questions.

 

[Indos]

=========

If I'm in the informal sector, what incentive can the govt bring to make me formalise.

Why should i pay tax, other than a sense of civic duty?

How can the govt make life difficult for me to force me to come into the formal sector?

What hurdles do i face when trying to formalise? What can be done to remove these hurdles?

The govt needs to answer these questions.

Maybe you can bring your experience in Britain to answer that, I mean what is the Britain gov strategy in dealing with that questions ? Some one in government may read this answers

 

[Bilal9]

=========

If I'm in the informal sector, what incentive can the govt bring to make me formalise.

Why should i pay tax, other than a sense of civic duty?

How can the govt make life difficult for me to force me to come into the formal sector?

What hurdles do i face when trying to formalise? What can be done to remove these hurdles?

The govt needs to answer these questions.

Exactly.

The reason people pay taxes in Western countries is because they get services in return.

Water, Sewage, Electricity, Street cleaning are the most obvious services but there are many non-mentioned services which are integral to the functioning of small (and micro) businesses. How about low interest loans which helps a business expand?

By the way that last bit about micro loans is also operated by large NGO's in Bangladesh like Grameen and BRAC and innumerable smaller NGO's. If you own a dozen Murgas (Barah Murga Enterprise) and want to expand to having say, ten times that amount (to have a thriving poultry and egg business), then micro loans from NGO's rather than banks are the way to go.

I should show you guys some agri videos from Bangladesh by Shykh Seraj which shows how guava and malta farmers in Bangladesh became overnight millionaires many times over.

 

[N.Siddiqui]

The reason people pay taxes in Western countries is because they get services in return.

Water, Sewage, Electricity, Street cleaning are the most obvious services but there are many non-mentioned services which are integral to the functioning of small (and micro) businesses. How about low interest loans which helps a business expand?

This would be unending and a vicious cycle, like people are not getting the services from the govt. as they have no funds and so they don't pay taxes, and govt. could not provide the services as there are no money in the coffers.

There is a need to break this vicious cycle and turn it into a virtuous cycle...never too late to start paying taxes.

 

[313ghazi]

Maybe you can bring your experience in Britain to answer that, I mean what is the Britain gov strategy in dealing with that questions ? Some one in government may read this answers

It sounds nuts, but they've created a way of life where people just do things the right way. There are very few hurdles to setting up, you can do it all online, i started my own business, took me like an hour to do the paperwork, probably less.

They also use the stick as well too. There is a lot of regulation around finance. You can't make large purchases with cash, it has to be in an account. You make large deposits of cash and you're asked about it's source. irregular activity will see your bank account blocked as suspected fraud. most online transfers require multi factor authentication. If i want to say someone lent me money to buy a property, it can only be lent by a parent or a sibling, no cousins or aunts/uncles. They want bank records as proof.

If we take the example of undocumented income - after a certain point there isn't anything you can do with it. What do you do with £100,000 of cash? Most businesses won't take more than 2-5000 cash for a single transaction. Currency exchange guys require bank statements for large amounts or large volumes. They warn you that transactions will be blocked if too much is being sent to the same person, or the same account or from the same person. They have a £2000 limit before they require more documentation from you. Every single transaction at a currency exchange is linked to your ID. You have to start money laundering or commiting fraud to get large amounts of cash into the system. For all large transactions you need money in an account or access to finance.

They change the notes every 7-8 years too. old notes will still be valid for a good 2-3 years afterwards, so there is no sudden shortage, but it eventually forces all old notes out of circulation.

Also a big thing is the mindset of the people - we're taught to follow the rules.

Right now 90% of people consider the current covid regulations as nonsense. Despite that 90% of people also follow the rules too. That is how society functions, not by exceptionalism becoming the norm. Walk up to a zebra crossing on the road in the UK. it's just lines painted on the road, no cameras, no signals. If you set foot into it, oncoming traffic will stop until you have crossed the road. The rules state that the pedestrian has right of way on that section of road. Despite this people still cross cautiously, looking to see if incoming traffic has time to stop, if they look like they're slowing down. Also these crossings are placed in residential zones or commercial zones where there is low levels of traffic. There is consideration from govt, the people who designed the system, the drivers AND the pedestrians. That's why it functions so efficiently.

In the UK if you approach a roundabout you stop, look to your right until traffic is clear and then cross. You signal when you leave. In Pakistan, if you stop, the driver behind will crash into you "oye why did you stop in the middle of the road". You have to enter the roundabout and traffic is going in all sorts of directions, it's like a game of asteroids.

The mentality is different and it's key to the successful operation of this country.

 

[SaadH]

Such estimations are not exclusive for Pakistan. Most developing countries (if not all) have a large informal sector. It is not an exception, but the norm

Pakistan's state institution particularly it's tax body unlike India's are woefully non-functional. India has a very robust tax institution whereas Pakistan's is almost non-existent. Pakistan doesn't even tax it's largest sector of its economy, i.e. agriculture. I'd imagine Pakistan's share of non-formal economy is far larger as proportion compared to country like India.

 

[Wood]

Pakistan's state institution particularly it's tax body unlike India's are woefully non-functional. India has a very robust tax institution whereas Pakistan's is almost non-existent. Pakistan doesn't even tax it's largest sector of its economy, i.e. agriculture. I'd imagine Pakistan's share of non-formal economy is far larger as proportion compared to country like India.

Pakistan's informal economy as stated in thread title is 56%. A study by State Bank of India claims that the informal economy in India was 52% before Covid gave the economy a body blow. I do agree that India's tax to GDP ration is much better at 18% compared to Pakistan's 12%. Both countries have a long way to go before the 33% average of the OECD countries can become approachable.

PS: I don't want a point scoring contest, so let's not make this an India vs Pakistan thing. India does not need to be in this discussion at all.

 

[N.Siddiqui]

Pakistan's state institution particularly it's tax body unlike India's are woefully non-functional. India has a very robust tax institution whereas Pakistan's is almost non-existent. Pakistan doesn't even tax it's largest sector of its economy, i.e. agriculture. I'd imagine Pakistan's share of non-formal economy is far larger as proportion compared to country like India.

It's very low in India as well, with just one percent of the population paying taxes, now the tax to GDP ratio in India has declined too. Maybe better than Pak as India has some big conglomerates...

Yes, only 15 million Indians pay tax; but who is to blame for this?

It is Mr Modi's govt that has added to the problem, and it can resolve it, only if it has the stomach to ignore the inevitable howls of protest from a very vocal middle class, writes T N Ninan

www.business-standard.com

Why Do So Few People Pay Income Tax In India?

In a country with a population of more than 1 billion people, just 27 million paid taxes last year. Many Indians see no clear link between paying taxes and provision of government services.

www.npr.org

 

[Hakikat ve Hikmet]

According to the Italian Amabassador to Pakistan, 80% of Pakistan's economy is undocumented. Makes sense....

 

[SaadH]

It's very low in India as well, with just one percent of the population paying taxes, now the tax to GDP ratio in India has declined too. Maybe better than Pak as India has some big conglomerates...

Yes, only 15 million Indians pay tax; but who is to blame for this?

It is Mr Modi's govt that has added to the problem, and it can resolve it, only if it has the stomach to ignore the inevitable howls of protest from a very vocal middle class, writes T N Ninan

www.business-standard.com

Why Do So Few People Pay Income Tax In India?

In a country with a population of more than 1 billion people, just 27 million paid taxes last year. Many Indians see no clear link between paying taxes and provision of government services.

www.npr.org

Biggest earners/corporations in India pay taxes. In Pakistan, only the wage earners do, everyone else is under-invoicing, understating and bribing to get out of paying taxes.

 

[Imran Khan]

if you include drugs it will be 10% more too

 

[TNT]

I would say the informal economy + black economy of Pakistan is actually more than 100℅ of GDP.

 

[Pak Nationalist]

I don't want to hijack this thread by talking about India. But since you asked, check this report from SBI (State Bank of India) : https://sbi.co.in/documents/13958/1...a-46bf-1f1e-2998-3c58c94dd156?t=1635409920832

TLDR version: In 2018, the informal economy of India was estimated to be 52%. But after Covid, the informal economy is now shattered - stands at barely 20%
[/QUOTE]
Why is the informal economy shattered post covid? Is it because it did not get state patronage when lockdowns were imposed?

 

[Maula Jatt]

I would say the informal economy + black economy of Pakistan is actually more than 100℅ of GDP.

when your crypto investments (a largely new form of investment so not a mainstream option for investment by vast majority of people,pretty sure 99% Pakistanis have nothing to do with crypto) become more in value than your forex reserves
You can sense something shady going on

Need to bring digitalization so our country stop being government poor, its embarrassing and bad for the country in the long run