Informal Economy Enabling Tax Evasion and Money Laundering in Pakistan: An Analytical Study

Purpose: The primary objective of this article is to conduct an in-depth analysis of the informal economy in Pakistan enabling money laundering and tax evasion in Pakistan. Furthermore, it also looks into the informal economy’s implications for the economic growth of Pakistan. Finally, this article recommends potential reforms for formalization of economy of Pakistan for prevention of such crimes.Methodology: A review regarding informal economy in Pakistan enabling money laundering and tax evasion with the help of prior studies has been conducted.Findings: The formalization of the informal sector, according to this article, is important not only for raising tax revenues, but also for digital, skilled-based improvement of business activities, ramping up the operations and maintenance size of small businesses, increasing and diversifying production, and enhancing the lot of low-wage earners.Implications: Lawmakers should focus on the implications of informal financial channels like hawala and hundi, which continue to operate beneath the radar of the informal sector. In order to identify money laundering, the Pakistani government must focus on strengthening and encouraging the digitization of the economy. The digitization of the economy is critical to the formalization of Pakistan's economy.