3/4/2022 - Economy and Finance

Black

By horacio gustavo ammaturo

Black

It is defined as an informal or irregular economy to the “legal” economic activities that are invisible to the State. Illegal activities such as narcotrafficking, smuggling or selling stolen items are not included in this classification.

This phenomenon is more common in underdeveloped countries than in the first world and perhaps the participation of the informal economy in total is one of the exponents that define which side of development is one or the other nation.

At the end of the year 2019 the ranking of countries whose economies recorded higher informal participations were:

  • First, the Republic of Congo with 96.5% informality.
  • Cambodia recorded 90%.
  • In our continent Bolivia, according to data from 2018, recorded an index of 77% of the participation of irregular activities over the total. In general, the Central American countries have more than 60% of their economic activities not taxed.
  • Our country declared during the year 2017 to register informal activities for less than 50%.
  • While Chile and Uruguay are among the most regularized presented Guarismos around 25%.
In addition to the call for numbers, formalizing the economic activities of a country is a real opportunity to include those who need it most.

In general, the reasons that promote such irregularities may be summarised in:

  1. Administrative matters. The complexity to meet in time and form with the payment of national, provincial and municipal taxes, which vary both in their forms of liquidation and in the rates on their count or even maturity dates, require to hire professionals and managers or to allocate a lot of unproductive time to pay taxes. This encourages the needy structure, resources or time to adjust to tax rules.
  2. Social security issues. The incidence of social costs in the remuneration of persons working in the formal economy increases the cost of work and reduces the actual income of employees. In many cases, the future income expectancy of the products of these employers' or retaining appropriations is insufficient and the reduction of the purchasing power of the contributions to the retired system, the product of inflation and poor use of the raised funds propose "a more bird valley in hand than a hundred flying", leaving aside the strategy to contribute to the reform. We must also point out that the plans that allow those who have not contributed to the system, so as to obtain the benefits in the same way that those who have carried out their entire life, cease to collapse.
  3. Labour legislation. In this field, we must include all matters that require employers' attention in trade union aspects, accident insurance at work risk, dismissal compensation, reduced working hours and any other social achievement that for workers of the formal economy represent irrenotable and requitable rights, while for those working within the informal sectors the employer profile and employment circumstances hinder these forms and even their claim.
  4. Tax matters. Having appointed in point a) the administrative questions on taxes, whether they are registrations and settlements, is now the turn of the tax burden and the ways of controlling the payment. The accumulation of taxes from all jurisdictions and the way to liquidate taxes put the taxpayer in place of a majority partner and state financer. The partner therefore takes the most important part of the contribution of the business and the financing, because in addition to having or not charged the money for the operations of the activity, taxes must be paid regardless of the charge of the business that gave rise. VAT or gross revenue tax on unpaid invoices and advances, perceptions and advances are part of these species. Within this area it is worth including permanent moratoriums and whitenings that allow at low cost to pass from the informal side to the greeters, leaving those who fulfilled the taste that the effort is not recognized and that the informal leave favored.
  5. Scale or geographic issues. Finally, we mention the scale and location of the activities concerned. Many activities are carried out in remote locations, inaccessible and lacking infrastructures to integrate the fiscal computer systems. There are also tasks provided by lesser-magnitude competitors who do not know procedures or the mere existence of taxes, because their only satisfy their fundamental needs.
The digitization of tax processes and the possibilities of crossing information between production, marketing and personal and corporate consumptions have hampered the failure of the sectors that interact between formal and informal activities, highlighting the non-compliance, facilitating the charger to demand compliance. However, the response to computer advancement, far from leading to greater formalization of the economy, has promoted more informality. Complete productive chains have gone underground seeking to improve their results or finances.

The regularization of the economy is closely associated with the formalization of employment, with which to include in the public agenda the importance of promoting and flexibilizing economic activity will produce a double effect by ordering also to work.

Less formalities to register and enable economic activities, simpler taxes to liquidate, unification of national, provincial and municipal bills, simplification of documents, digitization and computerization of processes are some of the actions, which without means reducing the tax burden can improve the proportions to the formal economy.

A greater segmentation of taxpayers due to invoicing to implement simplified tax systems will undoubtedly give the possibility of small entrepreneurs, account holders and independent professionals fulfill their tax obligations and benefit from the benefits that this circumstance should bring.

This is another fundamental point to take into account.

Being included in the formal production system should bring benefits. Often these exist, but they are poorly communicated.

Programmes of fiscal incentives, long-term loans, subsidised interest rates, tax deferrals, or even participation in international fairs promoted by the state to offer goods or services, are some of the ways in which taxpayers can be favored by the role of the collector.

For “white economy” less is more. Less bureaucracy allows more formalities. The less complex the more procedures can be met. Less variable rules will be the level of compliance. Lower tax charge, higher collection.

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horacio gustavo ammaturo

horacio gustavo ammaturo

I am Gustavo Ammaturo. I have a degree in Economics. CEO and Director of infrastructure, energy and telecommunications companies. Founder and mentor of Fintech, DeFi and software development companies. Blockchain Product Designer.

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