CC BY
15
https://doi.org/10.29013/EJEMS-20-4-30-33
Bezo Ylber,
Assoc Prof., College University of Business Tirana Albania, Vangjel Noti, Tirane E-mail: ybezo@kub.edu.al
INFORMAL ECONOMY AND LAW REGULATION
Abstract. The concept of informality is a concept which began to be used around the 50s-60s of the last century. Through this concept, scholars sought to find an explanation for all those actions and omissions committed by individuals in order to realize material and property gains, but avoiding the control of state authority. However, it should be noted that to date there is no single definition of the notion of "informality" or "informal economy". Informality or the informal economy are analyzed from different perspectives and refer to a high number of activities.
This is why not only the definition but also the name itself are the subject of discussion. The informal economy is also known in practice as "shadow economy", "cash economy", "hidden economy", "illegal economy", "informal sector", "underground economy", etc. Informality has been the subject of discussion and academic circles of economists since the 1950 s and 1960 s.
Although the black economy is clearly a subset of the informal economy, for the purposes of this study criminal activities are excluded from the definition. As we use this term in this material, we will understand that informal economics includes those enterprises and activities that may not comply with standard business practices, tax regulations and / or reporting required by businesses but are not included. in criminal activities. This paper is a theoretical view about the informality.
Keyword: informal economy, informal sector, underground economy, etc.
1. Introduction formed at the lowest possible cost, the supply side
All goods and services that family members pro- (employee) requires cash.
vide for themselves are also excluded from the in- 2. The link between the formal and informal
formal economy. Kacapyr (1998) estimates that so sectors
far the type of these products that are not included The informal economy consists of both employ-
in official accounts are both legal and ethical. Car ment and self-employment. This section describes
repairs, cooking and cleaning, planting vegetables, the characteristics of both types of informal work
caring for their children, caring for elderly family and how each relates to the formal sector. For some
members and much more are included in this clas- people, self-employment in the informal sector is the
sification - almost anything people do can be done main source of income. However, more often in the
by someone else if paid for should. informal economy the income from self-employment
A definition given by the Milwaukee Journal is combined with the income from a regular employ-
Sentinelm (2001): the informal economy exists ment (declared wages), transfers such as public ben-
because it is financially viable - at least in the short efits, private investment or savings (Raijman [2]; Fer-
term - for both the employer and the employee. man & Berndt, 1981, Hoyman, 1987; Morales, 1997 a,
The demand side (employer) requires a job per- 1997 b; Tienda & Raijman, 2000; Uzzell, 1980). In
other words, informal self-employment is usually parttime employment that provides additional income for people's primary employment (Alden, 1981). This often involves switching between economic sectors (formal and informal) during the same business day [1].
As can be seen from the above treatment, participation in the informal economy comes from a variety of sources. People can respond to the lack of economic opportunities in the formal economy by creating new activities in the informal economy or by joining existing informal businesses (Raijman [3]). Informal economic activities serve as an economic shock absorber when a person is unemployed or can provide additional income in a low-wage labor market (Hart 1970, Light & Roach, 1996; Morales, 1997; Stepick, 1989; Tienda & Raijman [4]). Informal labor agreements can also be a strategy imposed by the process of economic restructuring of large firms, which to minimize costs and increase flexibility shift their production to subcontractors (Raijman [3]). In this arrangement, they push employees out of the formal economy, thus motivating the rise of informal work. Raijman [3, 48] notes: "In the context of economic restructuring, the informal sector not only offers employment opportunities, but also implies a new form of exploitation: individuals are forced to work without the minimum level of protection provided by the legal system., and political mobilization of workers through unions is limited "(Aponte, 1997; Castells & Portes, [1]; Goan, 1997).
Raijman [3] article briefly summarizes Portes and Sassen-Koob (1987) four of the commonalities between formal and informal economics. These are:
1. Informal marketing chain. This marketing chain is used by industries to eliminate the costs involved in retaining permanent sales staff. What appears to be a disorganized mass of street vendors and traders is currently well-coordinated by a group of intermediaries dependent on formal firms (Portes, 1994 a, 1994b) [2].
2. Informal supply chain. Informal workers serve as suppliers ofinputs to domestic buyers, who, in turn, sell the product to the central wholesaler, and the last link
in the formal industry (Fortuna & Prates, 1989; Goan, 1997). What is involved in the informal economy
In this issue addressed, more essential is the identification of what is excluded from the informal economy. It is clear from the above treatment that the definition of informal work is complicated. The literature generally distinguishes criminal activities as part of the black economy. Although the black economy is clearly a subset of the informal economy, for the purposes of this study criminal activities are excluded from the definition. As we use this term in this material, we will understand that informal economics includes those enterprises and activities that may not comply with standard business practices, tax regulations and / or reporting required by businesses but are not included. in criminal activities.
All goods and services that family members provide for themselves are also excluded from the informal economy. Kacapyr (1998) estimates that so far the type of these products that are not included in official accounts are both legal and ethical. Car repairs, cooking and cleaning, planting vegetables, caring for their children, caring for elderly family members and much more are included in this classification - almost anything people do can be done by someone else if paid for should.
A definition given by the Milwaukee Journal Sen-tinelm (2001): the informal economy exists because it is financially viable - at least in the short term - for both the employer and the employee. The demand side (employer) requires a j ob performed at the lowest possible cost, the supply side (employee) requires cash.
3. The link between the formal and informal sectors
The informal economy consists of both employment and self-employment. This section describes the characteristics ofboth types of informal work and how each relates to the formal sector. For some people, self-employment in the informal sector is the main source of income. However, more often in the informal economy the income from self-employment is combined with the income from a regular employment (declared
wages), transfers such as public benefits, private investment or savings (Raijman [3]; Ferman & Ber-ndt, 1981, Hoyman, 1987; Morales, 1997 a, 1997 b; Tienda & Raijman, [4]; Uzzell, 1980). In other words, informal self-employment is usually part-time employment that provides additional income for people's primary employment (Alden, 1981). This often involves switching between economic sectors (formal and informal) during the same business day.
As can be seen from the above treatment, participation in the informal economy comes from a variety of sources. People can respond to the lack of economic opportunities in the formal economy by creating new activities in the informal economy or by joining existing informal businesses (Raijman [2]). Informal economic activities serve as an economic shock absorber when a person is unemployed or can provide additional income in a low-wage labor market (Hart 1970, Light & Roach, 1996; Morales, 1997; Stepick, 1989; Tienda & Raijman [4]). Informal labor agreements can also be a strategy imposed by the process of economic restructuring oflarge firms, which to minimize costs and increase flexibility shift their production to subcontractors (Raijman, 2001). In this arrangement, they push employees out ofthe formal economy, thus motivating the rise ofinformal work. Raijman [3, 48] notes: "In the context ofeconomic restructuring, the informal sector not only offers employment opportunities, but also implies a new form ofexploitation: individuals are forced to work without the minimum level of protection provided by the legal system., and political mobilization of workers through unions is limited "(Aponte, 1997; Castells & Portes, 1989; Goan, 1997) [3].
Raijman [3] article briefly summarizes Portes and Sassen-Koob (1987) four of the commonalities between formal and informal economics. These are:
1. Informal marketing chain. This marketing chain is used by industries to eliminate the costs involved in retaining permanent sales staff. What appears to be a disorganized mass of street vendors and traders is currently well-coordinated by a group of intermediaries dependent on formal firms (Portes, 1994 a, 1994b).
2. Informal supply chain. Informal workers serve as suppliers of inputs to domestic buyers, who, in turn, sell the product to the central wholesaler, and the last link in the formal industry (Fortuna & Prates, 1989; Goan, 1997).
I.1. Forms of informal economy
The presence of the informal economy in the economy can be seen mainly in two forms: the measure of circulation and use of "cash" money, and tax evasion. The trend of informal economic activity is based on the use of tangible money. This practice makes the economy appear as a "cash" economy. The Overseas Money Index (CBI) in our country continues to be high, compared not only with developed countries, but also with those in transition. Thus, the ratio of PJB to money supply (aggregate M3) in recent years has been about 30 percent compared to about 20 percent that have this indicator countries in the region, or about 7 percent developed. It is thought that the circulation of dirty money outside Albanian banks reaches up to one billion euros. The practice of tax evasion appears in the use of both balance sheets and fictitious reporting of income and losses [4].
The informal economy, and tax evasion as a direct expression of it, can be the result of a number of factors. These factors can be grouped into four main groups: of a legal nature, of a socio-cultural nature, and of a policy-making and administrative nature.
In the group of legal factors, two of the sources of informal economy and tax evasion can be considered adapted legislation and law enforcement. In the case of Albania, laws related to the informal economy are legislation adapted by different countries. The problem with these laws is that in most cases, they do not take into account the stage of development of the Albanian economy, the cultural level of our people. Also, these laws are not based on a good study of the concrete conditions of our country, the proper knowledge of the mentality and the environment where this legislation will be implemented. Problems are also evident in the quality oflaw enforcement agencies. Often, employees in the tax administration, customs or other
links do not have the proper training. In other cases, the lack of professional skills is compounded by moral, ethical, or legal responsibility, as opposed to what should characterize a civil servant.
In the group of socio-cultural factors, two of the sources of tax evasion are related to individual-state relations, and the concept of public-private relations. Unfortunately, within the Albanian society, but especially in the business society and economic and trade companies, there is a considerable mass of individuals who in their mentality do not see the state as their partner and protector of their vital and economic activity, but as an extortionate institution, as an adversary of their interests, activity, and good. Albania ranks among the countries with a low level ofgovernance in the field of taxation. The OECD notes that the private sector is not taxed at around one billion euros. The share that pays the obligations to the budget (taxes) is approximately 46 percent. In Albania, a perfection of forms of tax evasion is observed. It is no longer a street evasion, but a camouflaged one, based on elaborate and carefully thought-out strategies and tactics, and which also takes into account the anti-evasion war strategies of the tax administration. Qualified advisers manage to find elaborate and sophisticated forms within the gaps offiscal legislation, in order not to pay the state what is due to be paid. The use oflegal space to avoid paying taxes has stimulated the practice of
"legal evasion." These practices have become a more normal, preferred, stimulated and quite profitable action. The OECD notes that in Albania enterprises have become better able to take advantage of the lack of competition to systematically report their profits below fair value [5].
Conclusion
In the group of factors of policy-making and administrative nature, an important factor remains the role and practices of the Government and the Tax Directorate. The main argument of this paper is that the degree of informality and tax evasion reflect to a considerable extent the practices and attitudes held by both the current government and its agencies such as the Directorate of Taxes and Taxes.
One problem is the shallowness that characterizes them in recognizing the phenomenon of tax evasion. Neither the government nor the Directorate of Taxes call it their job to conduct studies or analyzes on the causes of deep tax evasion, on social and psychological factors, or more simply on behavioral economics.
The second problem concerns the practices and actions taken by them. What is observed is that the current government and the Directorate ofTaxes are characterized by an emphasis on the "revenue plan". The Directorate of Taxes considers that its first and only task is the realization of revenues; that the realization of the revenue plan is so important that it justifies [6].
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