The purpose of this article is to discuss the problem of black economy in relation to its emergence, its impact on the economy and society. Black economy is that segment of the economy, which is unreported and is not part of the national reporting system.
A rough estimate suggests that size of the black economy in South Asian countries, is of the same size as that of reported economy, if not more. Causes giving rise to the black economy includes tax-evasion, smuggling, drug trade, money laundering and un-reported transactions in real estate sector.
Tax evasion is the direct cause of system's weakness regarding tax collection, lack of professionalism on the part of tax officials, cumbersome rules, large tax exempt sector, Afghan transit trade, group under-invoicing, etc.
Smuggling takes place due to imposition of unrealistic restrictions, uncontrolled and large size pours border, gap between cost of organised imports and cost offered by smuggled items, unrealistic trade preferences (as we have in the case of China), lack of harmony between consumer preference and import restrictions, unrealistic exemptions (these create an imbalance in the market forcing others to adopt illegal means for becoming competitive). Furthermore, each state has to be realistic to realising its natural limitations, for example you can't spend so much to enforce prohibitations that make the choice ineffective.
Drug trade is one of the major causes of black economy. Roughly estimated drug trade originating from Afghanistan and passing through the trade routes of Pakistan and Iran is around 40 billion US dollars. This trade has drastically changed the economic scenario in Pakistan. Heavy investments in real estate sector, industry and trade made out of drug money, and the situation is out of the control of law-enforcers. Even its domestic supply is increasing and many killings have taken to deter those, who want to check this phenomenon.
Recently, an insider told me that investment in the industrial sector of Pakistan through drug-related money is on the increase as the cost of money to launder is nominal. An industrial concern has recently announced a project worth 2 billion dollars without any bank loan, this trend shows the quantum of entry of this menace in the national economy. Where are control and law-enforcement agencies? Become silent spectators to this ongoing crime.
Money laundering and unreported transactions in real estate are directly related to phenomena of smuggling, drug trade and organised crime. These events are taking place unnoticed. Neither the media nor the government is taking note of it. Though in the past encounters with the drug smugglers had risen for a short time and death toll of law-enforcement agencies increased. But nothing is happening in this sector for the last ten years. It appears that perpetrators have been successful in deterring the enforcement agencies. The Anti-narcotic Force took initiative in this regard. Though the initiative was good, it did show good results, the force showed courage to nab some known drug-smugglers, but right now things are not bright.
These events are alarming. On the one side, they are giving control of economic assets in the hands of criminals and, on the other, equity and equality considerations are being traded off by the state at the cost of ordinary citizens.
It appears that the state is a silent spectator to all these happenings. All the non-issues are being debated, but no one seems to have the courage to challenge what is happening around us.
We will have to be serious about protecting the law and to adopt a habit of accepting and following it Cicero (104AD), a Roman Senator had said that we should be store to law so that nobody else should enslave us. The statement shows an attitude for the respect of law. If we respect the law and head toward rule of law, we will be better citizens tomorrow. Otherwise failure of our leadership to confront these real issues will erode the state itself. We will have to be bold and courageous enough to challenge the perpetrators who want to destroy the fabric of society and the sovereignty of the country.
(The writer is an advocate and is currently working as an associate with Azim ud Din Law Associates Karachi.)