Underground economic activity accounts for a quarter of the nation’s GDP, aided by cash payments for retail transactions that remain out of the reach of tax collectors, a survey by Visa Taiwan showed yesterday.
“The informal economy made up 28.1 percent of GDP in 2012, slightly higher than the historical average of 25 percent” as retail transactions linked to cross-strait tourism strengthened after 2008, National Cheng Kung University vice president Ho Chih-chin (何志欽) said.
Informal economic activities include independent property brokerage, hairstyling, Web page design, domestic help, food and beverage supply and car-pooling, among other services, said Ho, who headed the research sponsored by the electronic payment service provider.
Family-owned factories and companies also contribute to the economy that falls outside the reach of taxation authorities, the economics expert said.
Prior to 2008, underground economic activities showed a gradual, though slow, decline, while major economic indicators such as exports, employment, wages and savings picked up, Ho said.
Minshuku, or family-run guesthouses, have mushroomed in popular tourist resorts in the wake of warming cross-strait ties, he said.
The prevalence of cash payments helped perpetuate underground economic activity because cash gives users the benefits of privacy and confidentiality, he added.
“The government should give serious thought to curbing underground economic activities, as they are unfavorable to equitable distributions of wealth and help foster tax evasion and irregular dealings,” Ho said.
Cash use helps weaken the world’s GDP by 5 to 7 percent because of costs associated with the printing, design and distribution of notes and coins, among other costs, Visa Taiwan country manager Marco Ma (麻少華) said, citing data from the Euromonitor Merchant Segment Study.
In Taiwan, cash use costs US$3 billion per year, expenditure which could be saved with the adoption of electronic payments, raising GDP growth by 0.17 percent, Ho said.
Visa said the use of electronic payments remains low in Taiwan compared with other Asian economies.
Citing the Euromonitor study, Visa Taiwan said cash remains the primary method of payment in Taiwan despite the introduction of payment cards more than 20 years ago.
Electronic payments represent only 25.8 percent of personal consumption expenditure in Taiwan, far below other Asian markets such as Hong Kong (64.5 percent), China (55.9 percent), South Korea (54.8 percent) and Singapore (53 percent), the statistics showed.
The underground economy in Poland has dropped from 26 percent to 23.8 percent after the country launched a program to double the size of its plastic payment network, Visa Taiwan said.
The government can encourage electronic payments by offering tax credits for consumers and profit-making establishments, Ma said.
Additional reporting by CNA
Cash boosts under-the-counter economy: Visa