Underground Pakistan: World's largest undocumented economy.

Pakistan's economy has long been plagued by a persistent challenge: the undocumented economy. Estimated to be worth a staggering $457 billion, this shadow economy encompasses a vast array of sectors, from street vendors to small businesses, and even a significant portion of the real estate sector. The implications of this phenomenon are far-reaching, with severe consequences for Pakistan's economic growth, revenue collection, and fiscal capacity.

One of the primary drivers of Pakistan's undocumented economy is its complex and unfair tax regime. With a tax-to-GDP ratio of just 11%, Pakistan has one of the lowest tax revenues in the world. This is largely due to a narrow tax base, which excludes many sectors and individuals. As a result, those who do pay taxes are burdened with an unfair share of the tax burden, leading many to seek ways to avoid or evade taxes altogether.

Another factor contributing to the undocumented economy is the incapacitated banking sector. With complex procedures and stringent requirements, many individuals and small businesses are deterred from opening bank accounts. This forces them to operate outside the formal economy, relying on cash transactions and informal networks.

Corruption also plays a significant role in perpetuating the undocumented economy. Widespread corruption among authorities and businessmen creates an environment in which tax evasion and other illicit activities thrive. This not only undermines the government's revenue collection efforts but also distorts the economy, favoring those with connections and influence over those who play by the rules.

The consequences of Pakistan's undocumented economy are severe. With a significant portion of economic activity taking place outside the formal sector, the government is deprived of much-needed revenue. This hampers its ability to invest in essential public services, such as healthcare, education, and infrastructure. Moreover, the undocumented economy creates an uneven playing field, where those who operate formally are placed at a disadvantage compared to those who do not.

To address this challenge, the government must implement a comprehensive strategy to formalize the economy. This includes simplifying tax procedures, expanding the tax base, and improving access to banking services. Additionally, efforts to combat corruption and improve governance are essential to creating an environment in which businesses and individuals feel incentivized to operate formally.

By tackling the undocumented economy, Pakistan can unlock its full economic potential, improve revenue collection, and create a more equitable business environment. It is a daunting task, but one that is essential for Pakistan's economic future.