Formalizing the Informal Sector: Issues, Challenges, and Opportunities 'A Case Study of Rawalpindi, Pakistan'

Main Article Content

Malik Saqib Ali
Azra Nasir
Muhammad Adnan
Syed Arshad Ali Shah

Abstract

The current research seeks the intention of the informal sector regarding transitioning towards formal sector. The main purpose of this study is to investigate the impact of tax avoidance, high tax rates, complicated registration process, tangible incentive on the ‘willingness to switch’ to formalization of informal sector. This research is conducted at three main commercial areas Raja Bazar, Saddar, and Tench Bhatta of Rawalpindi city, Pakistan. Simple Random Sampling is used with the sample size of 230. Primary data was collected through a structured questionnaire with both close and open ended questions. Linear probability model is used for the analysis. The results show that fifty six percent of the respondents are willing to register their enterprises, however they require some tangible benefits for registering their business. Furthermore, seventy eight percent are of the view that people do not register because they want to avoid taxes. Fifty six percent opine that one of the potential reasons is high tax rates. Seventy four percent considers complications in the registration process restricting people to register their business, and ninety percent firm owners report that getting registered will not prove to be handsome bid for them. Therefore, it is proposed that taxation authorities need to step up its dissemination efforts in reaching out to the informal sector about the potential benefits of registering with the tax authorities. It is also recommended that formalization of businesses should be branded and incentivized.

Article Details

How to Cite
Formalizing the Informal Sector: Issues, Challenges, and Opportunities : ’A Case Study of Rawalpindi, Pakistan’. (2024). Journal of Management Info, 10(2), 86-96. https://doi.org/10.31580/jmi.v10i2.2750
Section
Research Article
Author Biographies

Malik Saqib Ali, Department of Economics, National University of Modern Languages (NUML), Islamabad, Pakistan

The current research seeks the intention of the informal sector regarding transitioning towards formal sector. The main purpose of this study is to investigate the impact of tax avoidance, high tax rates, complicated registration process, tangible incentive on the ‘willingness to switch’ to formalization of informal sector. This research is conducted at three main commercial areas Raja Bazar, Saddar, and Tench Bhatta of Rawalpindi city, Pakistan. Simple Random Sampling is used with the sample size of 230. Primary data was collected through a structured questionnaire with both close and open ended questions. Linear probability model is used for the analysis. The results show that fifty six percent of the respondents are willing to register their enterprises, however they require some tangible benefits for registering their business. Furthermore, seventy eight percent are of the view that people do not register because they want to avoid taxes. Fifty six percent opine that one of the potential reasons is high tax rates. Seventy four percent considers complications in the registration process restricting people to register their business, and ninety percent firm owners report that getting registered will not prove to be handsome bid for them. Therefore, it is proposed that taxation authorities need to step up its dissemination efforts in reaching out to the informal sector about the potential benefits of registering with the tax authorities. It is also recommended that formalization of businesses should be branded and incentivized.

Azra Nasir, Department of Economics, National University of Modern Languages (NUML), Islamabad, Pakistan

The current research seeks the intention of the informal sector regarding transitioning towards formal sector. The main purpose of this study is to investigate the impact of tax avoidance, high tax rates, complicated registration process, tangible incentive on the ‘willingness to switch’ to formalization of informal sector. This research is conducted at three main commercial areas Raja Bazar, Saddar, and Tench Bhatta of Rawalpindi city, Pakistan. Simple Random Sampling is used with the sample size of 230. Primary data was collected through a structured questionnaire with both close and open ended questions. Linear probability model is used for the analysis. The results show that fifty six percent of the respondents are willing to register their enterprises, however they require some tangible benefits for registering their business. Furthermore, seventy eight percent are of the view that people do not register because they want to avoid taxes. Fifty six percent opine that one of the potential reasons is high tax rates. Seventy four percent considers complications in the registration process restricting people to register their business, and ninety percent firm owners report that getting registered will not prove to be handsome bid for them. Therefore, it is proposed that taxation authorities need to step up its dissemination efforts in reaching out to the informal sector about the potential benefits of registering with the tax authorities. It is also recommended that formalization of businesses should be branded and incentivized.

Muhammad Adnan, Department of Economics, National University of Modern Languages (NUML), Islamabad, Pakistan

The current research seeks the intention of the informal sector regarding transitioning towards formal sector. The main purpose of this study is to investigate the impact of tax avoidance, high tax rates, complicated registration process, tangible incentive on the ‘willingness to switch’ to formalization of informal sector. This research is conducted at three main commercial areas Raja Bazar, Saddar, and Tench Bhatta of Rawalpindi city, Pakistan. Simple Random Sampling is used with the sample size of 230. Primary data was collected through a structured questionnaire with both close and open ended questions. Linear probability model is used for the analysis. The results show that fifty six percent of the respondents are willing to register their enterprises, however they require some tangible benefits for registering their business. Furthermore, seventy eight percent are of the view that people do not register because they want to avoid taxes. Fifty six percent opine that one of the potential reasons is high tax rates. Seventy four percent considers complications in the registration process restricting people to register their business, and ninety percent firm owners report that getting registered will not prove to be handsome bid for them. Therefore, it is proposed that taxation authorities need to step up its dissemination efforts in reaching out to the informal sector about the potential benefits of registering with the tax authorities. It is also recommended that formalization of businesses should be branded and incentivized.

Syed Arshad Ali Shah, Department of Management Sciences and Commerce, Bacha Khan University, Charsadda, Pakistan

The current research seeks the intention of the informal sector regarding transitioning towards formal sector. The main purpose of this study is to investigate the impact of tax avoidance, high tax rates, complicated registration process, tangible incentive on the ‘willingness to switch’ to formalization of informal sector. This research is conducted at three main commercial areas Raja Bazar, Saddar, and Tench Bhatta of Rawalpindi city, Pakistan. Simple Random Sampling is used with the sample size of 230. Primary data was collected through a structured questionnaire with both close and open ended questions. Linear probability model is used for the analysis. The results show that fifty six percent of the respondents are willing to register their enterprises, however they require some tangible benefits for registering their business. Furthermore, seventy eight percent are of the view that people do not register because they want to avoid taxes. Fifty six percent opine that one of the potential reasons is high tax rates. Seventy four percent considers complications in the registration process restricting people to register their business, and ninety percent firm owners report that getting registered will not prove to be handsome bid for them. Therefore, it is proposed that taxation authorities need to step up its dissemination efforts in reaching out to the informal sector about the potential benefits of registering with the tax authorities. It is also recommended that formalization of businesses should be branded and incentivized.

How to Cite

Formalizing the Informal Sector: Issues, Challenges, and Opportunities : ’A Case Study of Rawalpindi, Pakistan’. (2024). Journal of Management Info, 10(2), 86-96. https://doi.org/10.31580/jmi.v10i2.2750

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