Role and Importance of Informal Sector in Pakistan

1. Significant employment source for majority population
   Informal sector employs 75% of working-age population, providing income and reducing unemployment.
2. Flexibility and resilience during economic crises
   This sector quickly adapts to economic shifts, acting as a safety net for vulnerable communities.
3. Supports innovation, entrepreneurship, and small businesses
   Informal businesses foster creativity and serve as the economy’s backbone, driving economic activity.
4. Reduces demand for social welfare programmes
   By offering jobs to those excluded from formal employment, it indirectly saves public funds.
5. Formalization strategies from other countries offer solutions
   Countries like Peru, South Africa, India, and Brazil offer simplified taxes and support for small businesses to encourage formalization.

Summary explaining informal sector’s role and challenges

Pakistan’s informal sector employs a majority of the workforce and offers vital income opportunities, especially to marginalized groups like women and youth. Its flexibility allows it to adapt quickly during economic downturns, providing stability and reducing poverty. It supports entrepreneurship, innovation, and economic growth while indirectly contributing to tax revenues through sales and consumption taxes. Suppressing it would increase unemployment and social unrest, so balanced policies are required. Learning from global examples, Pakistan must adopt simplified tax structures and support programs that help informal businesses gradually transition into the formal sector while ensuring they continue driving economic growth.

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