The Planning Commission(PC) is examining as to how to improve the investment climate, particularly for bringing the informal sector into formal economy, estimated at half of Pakistan’s $160 billion GDP. The study, a part of the new five-year plan, would be a major document after the Medium-Term Develop-ment Framework (MTDF) 2005-2010.

The mid-term review of the MTDF conducted recently, showed that various MTDF targets were missed during the first three years of the programme.

PC officials thought it fit to go for 2010-2015 plan reportedly at the behest of the Deputy Chairman Planning Commission Mr Salman Faruqi. Mr Faruqi is said to have asked the PC’s senior officials to focus on improving the environment for investors and better working conditions for industrial workforce.

The officials of the commission are analysing the working paper prepared by Dr Sabur Ghayur that seeks to, along with some other issues, reducing the informal sector to check tax evasion. Dr Sabur, chairman Policy Planning Cell of the ministry of labour and manpower, told Dawn that his paper was first sent to all the key ministries which have called for implementing its recommendations.

The Planning Commission’s new five-year plan could provide an opportunity for improving investment conditions, for ensuring minimum wages and for helping in improving the revenues by bringing the informal sector into formal one.

Dr Sabur said that black economy had grown to be half as big as the formal economy. The problem had reached such proportions that it was upsetting public welfare plans. He said there was a consensus among the economic ministries that the $83 billion could yield the national exchequer $8 billion if taxed even at a minimum rate of 10 per cent.

These are very conservative estimates as the size of the black economy could be much bigger. Since Pakistani economy is largely undocumented, it provides space to informal sector to grow and thrive. Under-invoicing has gone on for years and at a large scale.

He agreed that recently hoarders and speculators earned billions in wheat and flour trading without paying any taxes. Dr Sabur felt that black economy cannot be eliminated through punitive measures and needs to be tackled by providing incentives to enter the formal economy.

An official of the Federal Bureau of Revenue (FBR), however, when contacted said that there were different estimates about the size of the black economy. Its size could be 30-40 per cent of the total economy. There was a substantial part of the informal economy which was not in the mainstream economy and needed to be documented if new resources are to be mobilised for welfare purposes. Serious efforts should be made to formalise informal businesses and encourage them to come forward and disclose their incomes under Universal Self- Assessment Scheme.

Some decisions, he said, were required to convert cash-based economy into documented economy for having level playing field for every one to grow.

Dr Sabur said that the informal sector consisted of small units producing goods and services with the primary objective of generating employment and incomes to families engaged in these activities. This sector has been characterised by low levels of capital, skills, poor access to organised markets and technology, low and unstable incomes and unpredictable working conditions.

Such activities are often outside the scope and purview of the official statistical enumeration and government regulations as well as are beyond formal system of social protection. The units operating in the informal sector are highly labour-intensive but employment is mostly causal; based on kinship, personal or social relations rather than contractual agreements ensuring protection. The informal sector activities depend, to a large extent, on the local and regional demand.

This informal sector is difficult to estimate due to non-recording of its activities. The sector is expanding more rapidly in urban areas as compared to rural areas.

It includes wholesale and retail trade (35 per cent), ranked as number one in generating informal sector employment followed by manufacturing (21 per cent), community, social and personnel services (17.7 per cent), construction (13.8 per cent) and transport (11.1 per cent).

Despite its growing size, he pointed out that the informal sector continues to be largely “invisible” and “neglected.” Sufficient information is lacking concerning employment pattern, the nature and extent of its activities and characteristics of its participants which leads to an absence of information on region-trade-and activity- specific employment pattern.

The informal sector plays a significant role in employment and income generation but is marked with extreme inadequacy of detailed and reliable data. The government has been proposed to develop a comprehensive system of statistics on the informal sector activities.