By Deserie Avila, MBA., Business and Accounting lecturer, University of Belize, Belize; and
Michael J. Pisani, Ph.D., Professor of International Business, Central Michigan University
To Belizeans, it is self-evident that the informal economy is large. It is simply part and parcel of everyday and often very public economic activity (Pisani & Pisani, 2018). A study published as an IMF working paper estimated that on average 46.8% of the value of the whole Belizean economy, from 1991 to 2015, may be classified as informal (Medina & Schneider, 2018). Not only is the informal economy large, but it is a persistent and structural feature of the Belizean economic landscape. Informal economic activities generally refer to otherwise legal market exchanges that go unrecorded, unregulated, untaxed, and unsupervised by any government authority.
On May 13, 2022, an update to Belize’s trade license laws was tabled in the House of Representatives. This Trade License Bill (2022) seeks in part to regularize a portion of the informal economy. The push to regularize informal economic activities has been widespread across Latin America, primarily as a means for enhanced government revenue collection, often within the guise of public health and safety concerns as well as promoting tax fairness. In reality, those earning a living in the informal economy are more likely positioned at the economic margins with little political influence and are easy targets for public policymakers to secure economic gains without upsetting well-established economic interests.
In essence, this Trade License Bill codifies a continuum of informal, quasi-formal, and formal economic activities. The bill permits informal economic activities in rural areas, including orchards, vendors, and microenterprises. For these entities, no trade license fee is levied. While an oxymoron, this segment of the continuum is legal informality (see Figure below). The trade license bill seeks to move previous informal activity, such as entertainment, vendors with 600+ square feet of selling space, etc., into a more regularized environment. At this juncture, a fee is established as a permission to conduct business without formalization of other taxes—in a sense a quasi-formal business state (see Figure below), even for temporary business events or activities that may be renewed every three years. Lastly, the Trade License Bill keeps in place the previously established license fees of professions and activities considered more firmly within the realm of the regulated economy. This includes professionals such as real estate and insurance agents, lawyers, engineers, architects, and so on. Economic activities in this segment include supermarkets, banks, and gasoline stations (Beltraide, 2022).
Figure: Continuum of Informal/Quasi-Formal/Formal Trade License Activities
Informal Quasi-Formal Formal
Economic Economic Economic
Activities Activities Activities
Examples Examples Examples
Rural roadside vendors Urban roadside vendors Supermarkets
Agricultural lands Entertainers Hotels, Guest Houses
Proposed Fee = 0 Proposed Fee ≤ 200 Current Fee = 2-25% of
current rental value
As echoed by Minister Requeña, the purpose of the bill is to regulate the conduct of trade within the country, ensure that the public’s health and safety is unthreatened, generate revenue for the local authorities to provide the services within the towns, districts and city, and give sellers lawful rights to conduct business in the local space (Channel 7 News, 2022).
So, if the objective of the Trade License Bill is to regularize the economy, why are some economic activities left out and others included? If the objective is health and safety concerns, then all businesses ought to be included. The costs involved in collecting small amount of taxes from a large amount of informal businesses that might be hard to track, might very well outweigh the benefits. So, if the objective is tax fairness, then tax enforcement mechanisms should be strengthened and enforced; and/or, if it is revenue enhancement, then assessing a fee on the weak and vulnerable may be just the low-hanging fruit ripe for the picking.
What really goes unsaid in this trade bill is the very large role that the informal economy plays within the broader Belizean economy. If democratic public-policy makers seek to address the size and composition of the informal economy, more public discussion is needed based on empirical evidence of the causes and determinants of economic informality in Belize. The Trade License Bill may be one possible pathway toward reducing informality (if that is the objective) but must be done within a national consensus driven by a national dialogue.
References:
Beltraide (2022), “Trade License Registration,” available at: https://www.beltraide.bz/trade-license.html, accessed on May 15, 2022.
Channel 7 News (2022), “Updated Trade License Laws tabled,” available at http://www.7newsbelize.com/sstory.php?nid=61993&frmsrch=1, accessed on May 19, 2022
Medina, Leandro and Friedrich Schneider (2018), “Shadow Economies Around the World: What Did We Learn Over the Last 20 Years?” IMF Working Paper, January, WP/18/17, available at: ile:///C:/Users/mpisa/Downloads/wp1817%20(6).pdf, accessed on May 15, 2022.
Pisani, Michael J. and Jana S. Pisani (2018), “‘Off the Books’ Consumption: Determinants and Practice in Belize, Central America,” The Latin Americanist, 62(2), 213-241.