Pakistani GDP is now $800 Billion (Formal +Informal) as per ILO, SMEDA joint study

[Faani83]

Pakistan’s informal economy stands at staggering $457 billion​

ILO, SMEDA unveil joint study on reducing informality in Pakistan's enterprises​

by Staff Report

4 days ago

in Business, Featured, Pakistan
LAHORE – Asad Islam Mahni, Federal Additional Secretary Industries and Production has said that the total size of the informal economy in Pakistan is around $457 billion.

Speaking at unveiling of a study on “Mapping of Barriers and Opportunities to Reduce the Informality of Enterprises in Pakistan”, he said that around 72.5 per cent of the labour force, outside agriculture, is employed by the informal sector, also covering market share of over 40pc in the GDP.
The Small and Medium Enterprises Development Authority (SMEDA) and the International Labour Organization (ILO) has carried out the study and the report was launched at a consultative workshop held to lay down the national action plan for formalization of SMEs.

Asad Islam Mahni said that the Ministry of Industries & Production is in the process of developing the National Industrial Policy. “The Policy will provide a comprehensive roadmap of re-industrialization in Pakistan, considering the regulatory & taxation regimes, as well as incentivizing investments in key sectors of the economy. Our focus is also on integrating SMEs into local, regional, and global value chains,” he added.
Judith Van Doorn, Enterprise Specialist of ILO, highlighted multi-pronged approach of ILO business formalization, emphasizing how it can be made easier, more attractive and beneficial for both business and workers. She also pointed out that formalization process in Pakistan would promote simplification of business procedures, productivity and development of SMEs.

CEO SMEDA Socrat Aman Rana said that around 5.24 million SMEs are driving economic engine. Exports of the sector are estimated at 30pc. In terms of employment, 70pc of the non-agriculture labour force is associated with the sector. The majority of SMEs, around 53pc, operate in wholesale and retail trade, hotels, and restaurants, followed by community, social, and personal services at 22pc, and manufacturing at 20pc, he said, adding that the study is a crucial first step towards recognizing that informality exists in the economy and that supporting SME formalization can have a significant impact on key development indicators.

He informed that despite being the 43rd largest economy globally in terms of GDP, a significant portion of Pakistan’s economy remains undocumented, resulting in a low tax contribution, with the Tax to GDP ratio never exceeding 13pc, clocking in at 10.2pc.

1. It makes GDP per capita around $3,333 2. As per the video, a lot of Street vendors making Rs 100,000 per month with no contribution to taxes.

 

[FuturePAF]

If this is true, at the very least we should find a way to wean ourselves off indirect import of indian products (via Dubai and other third ports) and use our large market to make our companies competitive in exports.

 

[Jango]

I really don't understand what the excuse is to not get registered and pay taxes and everything.

You pay taxes, the government makes things better for you, you get cheaper electricity, the other BS add on taxes reduce, surcharges are removed, you get proper working conditions for your labor, make a better product, sell it for a higher price, pay a higher wage to your employee, earn more money, and the whole country gets an uplift.

Long term dekhna to hamaray liay haram hai.

 

[SaadH]

This inflated number is not supported by Pakistan dismal export and currency reserves numbers.

 

[SD 10]

I really don't understand what the excuse is to not get registered and pay taxes and everything.

You pay taxes, the government makes things better for you, you get cheaper electricity, the other BS add on taxes reduce, surcharges are removed, you get proper working conditions for your labor, make a better product, sell it for a higher price, pay a higher wage to your employee, earn more money, and the whole country gets an uplift.

Long term dekhna to hamaray liay haram hai.

the opposition whoever they are whether pti or pmln or ppp tells people not to pay and considering the overall historical selfish nature of Pakistanis.... FBR takes a small cut and you dont have to pay anything! Every single lawyer in this country is working with officials in fbr to get their cut both in tax payments and tax refunds. FBR officials take about 40-50% of the tax refund.......there are multiple causes and even those who wants to pay are persuaded not to pay!

 

[DevendraRajput]

I really don't understand what the excuse is to not get registered and pay taxes and everything.

You pay taxes, the government makes things better for you, you get cheaper electricity, the other BS add on taxes reduce, surcharges are removed, you get proper working conditions for your labor, make a better product, sell it for a higher price, pay a higher wage to your employee, earn more money, and the whole country gets an uplift.

Long term dekhna to hamaray liay haram hai.

Bhai, the moment you start registering your small business, that moment you have to start becoming compliant to labour laws, tax regulations and what not. Many businesses become infeasible if they have to be complaint with all of these.

You have a small shop, you employ kids of family for help, you are non complaint to labour laws. Moment you try to employ adults, you have to pay and your business starts getting less profitable and sometime infeasible.

Many shops in poor areas can not offer services if they do not offer it very cheap. They are already operating on razor thin margins. The moment they become formal, they will become infeasible because locals will not be able to afford their services or goods at that price.

Then there is electricity. Sometimes government gives electricty cheap for residential areas and more expensive for commercial use. You become formal business, you pay more for electricity.

Then there are taxes.

Then there is gas prices. Gas is subsidized for residential use but commerical is supposed to pay full.

Then there are safety regulations.

Then there are labour regulation. You employ people, you are expected to provide basic amenities like toilets etc. Many businesses can not afford to provide that.

 

[Justin TruDont]

This might explain all those DHA palaces you see on YouTube

 

[PakFactor]

I really don't understand what the excuse is to not get registered and pay taxes and everything.

You pay taxes, the government makes things better for you, you get cheaper electricity, the other BS add on taxes reduce, surcharges are removed, you get proper working conditions for your labor, make a better product, sell it for a higher price, pay a higher wage to your employee, earn more money, and the whole country gets an uplift.

Long term dekhna to hamaray liay haram hai.

I wouldn't completely trust those numbers. As for why they don't register and pay, in Pakistan, history is an indicator of the future. Currently, as a country, there is not a strong social contract between the state and the citizens due to lack of trust.

 

[FuturePAF]

I really don't understand what the excuse is to not get registered and pay taxes and everything.

You pay taxes, the government makes things better for you, you get cheaper electricity, the other BS add on taxes reduce, surcharges are removed, you get proper working conditions for your labor, make a better product, sell it for a higher price, pay a higher wage to your employee, earn more money, and the whole country gets an uplift.

Long term dekhna to hamaray liay haram hai.

I suspect many business are subsistence business, and should they get on the radar of the tax man, they won’t be economically viable enough to endure.

We also have to look at what direct benefits a business gets by paying their taxes over non-filers. That benefit/cost ratio has to be such that it makes it worth while for the business to be fully declared.

The world bank estimates 70% of labor is employed by the informal sector.

Btw the fastest way to formalize the informal economy is digital payments with no fees, as good as using cash. This can allow people to park their money in an account, where they are paid say 10-15% on their money annually, to help offset some of the inflation, and earn create a larger bank from which the government can borrow at a lower interest rate, then the loans from international commercial borrowing, 22%?

https://www.reuters.com/markets/rates-bonds/pakistans-central-bank-keeps-interest-rate-hold-22-2024-03-18/

 

[Abid123]

I have saying it for years. This was from a month ago.

 

[Jango]

the opposition whoever they are whether pti or pmln or ppp tells people not to pay and considering the overall historical selfish nature of Pakistanis.... FBR takes a small cut and you dont have to pay anything! Every single lawyer in this country is working with officials in fbr to get their cut both in tax payments and tax refunds. FBR officials take about 40-50% of the tax refund.......there are multiple causes and even those who wants to pay are persuaded not to pay!

The opposition is not even 0.5% of the problem here.

 

[Jango]

I suspect many business are subsistence business, and should they get on the radar of the tax man, they won’t be economically viable enough to endure.

We also have to look at what direct benefits a business gets by paying their taxes over non-filers. That benefit/cost ratio has to be such that it makes it worth while for the business to be fully declared.

The world bank estimates 70% of labor is employed by the informal sector.

Btw the fastest way to formalize the informal economy is digital payments with no fees, as good as using cash. This can allow people to park their money in an account, where they are paid say 10-15% on their money annually, to help offset some of the inflation, and earn create a larger bank from which the government can borrow at a lower interest rate, then the loans from international commercial borrowing, 22%?

https://www.reuters.com/markets/rates-bonds/pakistans-central-bank-keeps-interest-rate-hold-22-2024-03-18/

That is what companies and SBP are trying to do with Raast and Jazzcash etc., but problem is, the process of creating a bank account in Pakistan is so cumbresome, no small retailer wants to create one.

And then there is the obvious financial illiteracy. Alot of voodoo everywhere, hakoomat paisay kha jaye gi, banks steal money, bla bla bla. And then the interest argument (although that can be managed by giving everything a cloak of Islamic banking on the front).

 

[Jango]

Bhai, the moment you start registering your small business, that moment you have to start becoming compliant to labour laws, tax regulations and what not. Many businesses become infeasible if they have to be complaint with all of these.

You have a small shop, you employ kids of family for help, you are non complaint to labour laws. Moment you try to employ adults, you have to pay and your business starts getting less profitable and sometime infeasible.

Many shops in poor areas can not offer services if they do not offer it very cheap. They are already operating on razor thin margins. The moment they become formal, they will become infeasible because locals will not be able to afford their services or goods at that price.

Then there is electricity. Sometimes government gives electricty cheap for residential areas and more expensive for commercial use. You become formal business, you pay more for electricity.

Then there are taxes.

Then there is gas prices. Gas is subsidized for residential use but commerical is supposed to pay full.

Then there are safety regulations.

Then there are labour regulation. You employ people, you are expected to provide basic amenities like toilets etc. Many businesses can not afford to provide that.

I am no econ major, but the concept I have been told and read is:

1- Increase your rates. Everyone increases rates.
2- The consumer pays more
3- You get more profit
4- You then use that profit to pay those higher salaries and be compliant with laws.
5- Government gets more money, so they reduce the power rates etc.

Of course this is a year long strategy, not a quick one.

But we need to make a start from somewhere.

Labor laws are already non existent in Pakistan.

Leave out the small Kariana store in some village, but at least do tax the retailers sitting in F7 and F10 markaz. Tax the small industries operating in every nook and cranny in Lahore. Tax the tire shops and body shops in Sultan ki Khui. Those guys are selling 70k car doors tax free!

 

[Hakikat ve Hikmet]

And, you need to also add a secretive parallel economy run by the Deep State....

 

[Cryptonian]

If it's undocumented, How does this agency know that it's 457B$ , ?
It doent even mentions sector wise distribution.