Q1: What is the size of informal entrepreneurship in Pakistan?I. What percentage of small businesses are operating in the informal sector?II. How does their percentage vary by sector?III. Do all such businesses practice the same level of informality, or does it vary across different enterprises and sectors?
Q2: What are the motives for Pakistani entrepreneurs to operate in the informal economy?I. Are they all doing so out of necessity? Is it a survival practice in the absence of alternatives? Or are they doing so more out of choice?II. Is it always an ‘economic motive’ that motivates small Pakistan entrepreneurs to engage in informal work?III. Are there any social/cultural factors that influence the likelihood of entrepreneurs to participate in informal business practices?IV. How do their motives vary across different sectors?
Q3: What policy measures can be used to tackle informal entrepreneurship in Pakistan?I. What are the barriers to formalization faced by informal entrepreneurs in Pakistan?II. How do the barriers to formalization vary across different sectors?III. What should be done to formalise the informal sector – deterrence or enabling option?
Questionnairei. Demographicsii. Business Introductioniii. Size of Informalityiv.v. Motives of Informality Ease of Doing Business Totalvi. Risk Detection and Tax Morality questions:vii. Employment and Workersviii. Business Environment 75 i. Competitive ii. Regulatoryix. Problems and Prospectsx. Financing and Support Structuresxi. Policy Recommendations
Pilot Field Survey• Three research teams• Convenience sampling• 10 face-to-face interviews in EACH sector• Outcomes: – Respondents were quite honest and forthcoming – Development of shared language – Elimination of a few personal questions – Re-ordering of questions
Quantitative Field Survey• Three teams of researchers• Two research associates• Time span: 3.5 months• 312 face-to-face interviews at business premises• Average interview time: 25-30mins• Excellent response rate! – (312 out of 330 responses)• Weekly submissions and random follow-up calls (approx. 30 calls)
Qualitative Field Survey• Research Team (PI & RA)• 15 face-to-face in-depth interviews – Five in each sector• Time span: 1.5 months• Average interview time: 60mins
Survey Administration• Weekly meetings with the PI and questionnaires submission• Follow-up calls to the respondents(approx. 30 calls)• Random visits of a research associate
Data Analysis: A mixed method approach Qualitative Quantitative Frequency Interview charts/tables statements Cross Thematic tabulations coding Ordinal Logistic Model
Cross TabulationsQ No. Description Q No. Description B Age Versus 2.4 Legal status I Income Versus 3.1 Number of registrations Legal status/number of D Sector type Versus 2.4/3.1 registrations 2.8 Start-up motivations Versus 3.1 Number of registrations 2.4 Legal status Versus 3.7 Type of account keeping 3.1 Number of registrations Versus 3.10 Tax morality D Sector type Versus 3.4 Informality motives Number of registrations/legal 3.4 Social/cultural motives Versus 2.4/3.1 status Number of registrations/legal 3.4 Economic motives Versus 2.4/3.1 status 3.9 Ease of registration Versus 3.1 Number of registrations
Statistical Model Inability to enter Tax morality Age Income Education formal economy Sector Corruption Subcontracting Ease of doing Tax level business Level of informality Risk of Ease of detection registration Awareness Individual level Institutional levelCompetitiveness Resistance towards Structural level government
Decision Matrix for the Level of Informality Tax Legal status Book keeping registrationFormal Limited Liability Formal Account 5 Yes 4Enterprise Company Keeping 1 Own-account Worker No written 1 accounts 2 Sole Proprietorship Informal 2 records forInformal 3 Ordinary Partnership personal use Yes/NoEnterprise Simplified 4 Registered Partnership 3 accounting formats Unregistered with 6 Employees 5 Others
Future Direction ACTIVITTY TENTATIVE DEADLINE1 Submission of interim report 28 Feb 20132 Data analysis (quantitative and qualitative) 31st May 20133 Policy survey 30th June 2013 •Lahore (03-05 interviews) •Karachi (03 interviews) •Islamabad (03-05 interviews)4 Review of international policy literature 15th June 20135 Policy seminar in UCP May 2013 (subject to the availability of speakers)6 Compilation of policy survey results 15th July 20137 Final report 30th August 20138 Application for grant extension
Tax morality and risk detection Acceptability Riskiness 18% 2% Highly acceptable 15% Somewhat acceptable 50% Not acceptable 32% very risky somewhat risky not risky 26% Do not know57%
Tax morality …..Should the government register businesses like you Yes No
Reasons to remain informal Motives PercentageDo not need/want to register my business 70%All the similar businesses are not registered 40%Non-registration is a common practice in my country 29%The state does not do anything for the people so why 23%should we obey the lawOther 19%Registration system is corrupt 10%Taxes are too high 8%
Qualitative Remarks“The law is too complicated and the people who implement it also have a “price” and then they will help the bribing person to abuse the law” “The Labour Department gave me a challan because I do not close the shop on any day of the week … It restricts my business freedom”“The law saves only the powerful and the rich, they know how to use the loop holes”“A simple submission of traffic challan takes 4 steps, which is more frustrating than the fine itself, let alone filling tax return” “I have heard from other shop owners that getting NTN is very complicated, so I did not try” If we give the bill with tax inclusive, the customers demand to make a “kacha” bill without tax” Departments force regulations only for few days, then no follow ups. I out the tax number on display but means nothing after few days”