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comprising members of financial intelligence units of member countries. The Egmont Group aims at improving cooperation in the fight against money laundering and the financing of terrorism. Bangladesh's application is on hold for several reasons. It is yet to make certain amendments of regulations - introducing online reporting system to make the FIU of Bangladesh Bank more effective, strengthening monitoring in the NGO Affairs Bureau, Securities and Exchange Commission and postal department to combat money laundering and terrorist financing. The informal economy has blossomed primarily due to higher costs and longer delays associated with the adherence to existing laws and regulations. Too many regulations, high cost of compliance, government corruption, poverty, deprived access to justice, etc. push businesses and economic activities to informal sectors. There are some complexities in defining informal economy or informal economic activities. Certain types of income and the means of their generation are unregulated by regulatory institutions in some countries but regulated in other countries. The informal economy, generally untaxed in nature, commonly includes goods and services of any kind and category. They include private unincorporated enterprises, individuals or households that are not constituted as separate legal entities. Hence, for such entities, no complete accounts are available that would permit a financial separation of the production activities of the enterprise from the other activities of its owners. The distinction between formal and informal economic activities is determined by the national laws of individual countries. There are many economic activities that generate little income, but constitute a vital means of survival. These include: self-employed single individuals (street hawkers, taxi drivers and home-based workers), casual and temporary jobs, subsistence agriculture, multiple job holding, etc. Undeclared business activities resulting in tax evasion, avoidance of labour regulation and other government or institutional regulations, no registration of the company also constitute informal economic activities. The vast majority of informal economic activities provides goods and services whose production and distribution are perfectly legal. Informal economic activities are not necessarily performed with the deliberate intention of evading taxes or social security contributions; infringing labour legislation or other regulations. The informal economy can however include restricted illegal and restricted legal operations, but no criminal operation. The informal economy should therefore not be confused with the 'black market' which is characterised by criminal economic activities like trade in stolen goods. The informal economy has been observed to have more of a fixed character in developing countries where incomes and assets are not equitably distributed. As such when economic growth is not accompanied by improvements in employment levels and income distribution, the informal economy does not shrink, instead it begins to increase continuously in mostdeveloping countries, in both rural and urban areas. The informal economic activities are largely characterised by easy entry and exit in relation to formal enterprise owing to low requirements of capital and skills, professional qualifications, labour-intensive methods of production, and skills gained from informal training and education, poor working conditions, and lack of knowledge on legal rights. The employees are not
employed on regular basis and nominal wages are determined in a free market environment. Almost every country has an informal economy with differing dimensions, the highest beingdeveloping countries where up to 60 per cent of the labour force is in the informal sector. A recent study of donors says that 35 per cent of GDP of Bangladesh is in informal sector. Tax evasion is widespread in Bangladesh. Undeclared income could account for up to 80 per cent of GDP -- some US$110 billion, Agence France-Presse (AFP) reported recently, citing a new Finance Ministry study. There is no reliable statistics of informal economy. Underground activities like crime, corruption, bribe, money laundering, smuggling etc are not part of informal economy but activities of criminal nature and the global community is concerned of these crimes including terrorist financing and promote of security concern. Despite the prevalence of the informal economy, many countries do not have official definitions of the same. Instead, some institutions in these countries have created their own interpretation of the institutions that function in the informal economy. Bangladesh has no differentiation between informal sectors and criminal activities. The Central Bank of Sri Lanka (CBSL) classifies organisations that do not contribute to the general Employees Provident Fund (EPF). According to the Central Statistical Organisation of India, all unincorporated enterprises and household industries (other than organised ones) which are not regulated by laws and which do not maintain annual accounts or balance sheets constitute the unorganised sector. Indonesian authority defined the informal sector as individuals over 10 years of age, self-employed assisted by family members, farmer employees or non-wage family workers. The Thai National Statistical Office (NSO) defines the informal sector as those enterprises that typically operate with a low level of organisation on a small-scale, low and uncertain wages and have no social welfare and security. It has been observed that in some countries in Asia, the informal economy has declined during economic boom and increased during economic recession. This shows the link or dependency of the informal economy on the formal one. However, the informal economy has been observed to have more of a fixed character in countries where incomes and assets are not equitably distributed. It seems that if economic growth is not accompanied by improvements in employment levels and income distribution, the informal economy does not shrink. The situation therefore is that the informal economy is continuously increasing in most developing countries, even in rural areas. The legal and regulatory framework relating to entrepreneurship and business affects both the informal and formal economic activities. It reflects the overall investment climate of a country. Transparent and unambiguous laws and regulations reduce bureaucratic blunders and corruption while leading to efficient investment procedures. Legal instability and high volatility of fiscal and business regulations enhance informal economic activities. The taxation regulation, foreign exchange arrangements, environmental laws and regulations, competition regulation, consumer protection and regulations concerning access to finance should be easier and clearly defined and properly enforce equally on all the citizens. The rule of law is essential to achieve economic development and sustainable poverty reduction.
An important issue to be answered here is whether informal economic activities can be reduced so as to allow the formal economy to take its place. All the countries have provision of changing the informal economy to formal economy for enhancing the social and economic development. It has been observed that even a small formalisation process would probably give rise to an increased economic growth. However, the formalisation of informal enterprises in many developing countries is a difficult process mainly due to lack of rule and regulations. The law and rule should have distinctive definition of informal economic activities and criminal activities. Bangladesh must have official definition of informal economy and informal economic activities. The writer is a part time teacher of the Leading University and pursuing PhD in Open University, Malaysia. He can be reached at e-mail: shah@banglachemical.com