## SECTION I: OVERVIEW ## Source details **Canonical URL:** [SECTION I: OVERVIEW](https://www.imf.org/-/media/files/data/statistics/bpm6/iett/ie1-gn-stat-framework-ie.pdf) ## Other formats - [Markdown version](/-/media/files/data/statistics/bpm6/iett/ie1-gn-stat-framework-ie.pdf.md) - [Structured JSON version](/-/media/files/data/statistics/bpm6/iett/ie1-gn-stat-framework-ie.pdf.json) --- ### Purpose and scope - The guidance note aims to: - present recommendations for a coherent set of statistical recommendations necessary for measurement of work and economic activity in the informal economy; and - identify and delineate the statistical issues on the informal economy that should be addressed as part of the update of the System of National Accounts 2008 (2008 SNA) and the Balance of Payments and International Investment Position Manual, sixth edition (BPM6). - Source attribution: The guidance note SECTION I: OVERVIEW. ### Treatment of dependent contractors - The treatment of dependent contractors is discussed in the ILO working group for the revision of the standards for statistics on informality (para. 36). - National Accounts preferred treatment (paras. 37, 45, 46): - Classify all dependent contractors as owners and operators of unincorporated household enterprises (para. 37). - That economic unit is part of the informal sector if it is not registered for tax or similar purposes and in the formal sector otherwise (para. 37). - Dependent contractors facilitated by digitalization are treated as outlined above (para. 45). - Many new forms of dependent contractors facilitated by digitalization are dependent on large formal enterprises that provide a digital intermediation service; ties to these formal units can facilitate some formality for the dependent contractor (para. 46). ### Illegal activities and informality - Recording principle: - The 2008 SNA principle: “…illegal actions that fit the characteristics of transactions are treated the same way as legal actions.” Market transactions in illegal goods or services are to be recorded in the accounts if they meet transaction characteristics and the purpose is to generate income (para. 38). - Two kinds of illegal production (2008 SNA para. 6.43) (para. 39): - a) The production of goods or services whose sale, distribution or possession is forbidden by law. - b) Production that is usually legal but becomes illegal when carried out by unauthorized producers. - Policy and classification approach (paras. 40–42): - Most illegal productive activities would be part of the informal economy if informality principles are applied (para. 40). - Policy incentive exists to transform production that is usually legal but becomes illegal when carried out by unauthorized producers into legal production arrangements; no policy need to exclude these from the informal economy (para. 41). - The Task Team proposes to exclude type a) illegal productive activities from the informal economy by convention and to supplement informality statistics with measures of type a) illegal productive activities (para. 42). - Production of informal production units of goods and services that are usually legal but become illegal when carried out by unauthorized producers should be included in the informal economy (para. 42). - A large expert group consultation of macroeconomic accountants and labour statisticians agreed with this proposal (para. 42). ### Non-observed economy, underground economy, and undeclared production - Conceptual distinctions (para. 43 and Annex I): - The informal economy overlaps to some extent with the non-observed economy, underground production, and undeclared production; these are conceptually different and have different objectives (para. 43). - Non-observed economy (paras. 57–58): - Describes economic activities not captured in regular statistical enquiries; contents vary between countries (para. 57). - Used in the context of achieving exhaustiveness of national accounts, focusing primarily on GDP (para. 58). - The framework for the informal economy does not focus on GDP exhaustiveness and includes production outside the SNA production boundary, going beyond GDP (para. 58). - Underground production (para. 59): - Includes legal productive activities deliberately concealed from public authorities to avoid taxes, social security, legal standards, or administrative procedures (para. 59). - Informal economy concepts include some underground production but extend beyond it, with multiple reasons for informal production (para. 59). - Undeclared production (para. 60): - Includes all production deliberately concealed to avoid taxes, social security contributions, or other laws; includes underground production and illicit/illegal production (para. 60). - Overlap with informal market economy exists for non-illicit undeclared production (para. 60). - Undeclared production also includes tax elusion that affects measured value added (para. 60). - Informal economy includes activities not part of undeclared production (e.g., very low-scale production not required to register) (para. 60). - Undeclared work includes illegal production and illicit activities; these are not by default included in the concept of the informal economy (para. 60). ### Other coverage issues when addressing the informal economy - Key issues listed: 1) Digitalization, 2) Informal cross-border flows (including tourism services for non-residents), and remittances transmitted through formal and informal channels (para. 44). H3: Digitalization (VII.1, paras. 45–49) - Measurement challenges and phenomena (paras. 45–49): - Rapid digitalization has raised concerns about mismeasurement of economic activity; new activities (some informal) and new job types have arisen (para. 45). - Digital marketplaces enable household participation in production that can be part of the informal sector/informal economy (para. 47). - Classification of households using digital marketplaces as informal sector enterprises depends on: - 1) whether the sale of goods and services constitutes production, - 2) whether the production is done in a household unincorporated enterprise, - 3) is mainly intended for the market, and - 4) whether the enterprise is informal (para. 47). - The guidance note does not make recommendations on which household activities facilitated by digitalization should be considered production; current SNA definitions should be applied (para. 48). - Digital platforms can be a useful source of data on informal activity by linking formal enterprises and the informal economy (para. 49). H3: Informal cross-border flows (VII.2, paras. 50–53) - Omissions and examples (paras. 50–51): - Omissions in external sector statistics can arise because transactions are outside regular inquiries; some omissions relate to informal economy activities and others to formal enterprises (para. 50). - Examples: - Shuttle trade by unincorporated household enterprises may not be covered by customs recording and may fall within the informal economy (para. 50). - International trade in mobile assets (aircraft, ships) undertaken by large formal enterprises may be omitted for practical reasons but are not part of the informal economy (para. 50). - Informal cross-border flows pose data collection and estimation challenges because they involve transactions by small units and households not covered by regular programmes (para. 51). - Framework extension and types of informal external transactions (para. 52): - The framework for the informal economy can be extended to account for external transactions related to production in the informal economy; such transactions would be recorded primarily in the current account and include: - (i) Informal cross border transactions in goods (exports and imports): includes shuttle trade and smuggling of legitimate goods by informal units (para. 52(i)). - (ii) Informal services: primarily tourism services such as room rental and informal restaurants and bars; growth of online marketplaces for accommodation rental has allowed households to provide accommodation services to non-residents (para. 52(ii)). - (iii) Remittances transmitted through informal channels: workers without access to formal financial units may use informal money transfer systems and may be engaged in informal employment lacking appropriate employment permits (para. 52(iii)). - Income from informal economy production may be transmitted as remittances through formal channels (digital money transfer systems increasingly used) and may generate imports of consumer goods and services (para. 53). H3: Illicit financial flows (VII.3, paras. 54–56) - Distinction from informal cross-border flows (para. 54): - Illicit financial flows (IFFs) are distinct from cross-border informal economy flows; the Conceptual Framework for the Statistical Measurement of Illicit Financial Flows (UNODC and UNCTAD, 2020) identifies IFFs as activities considered criminal offences and some behaviours related to tax and commercial practices (para. 54). - Four main activity types generating IFFs (para. 54): - i. tax and commercial activities - ii. illegal markets - iii. corruption - iv. exploitation-type activities and financing of crime and terrorism - Stages where IFFs can emerge (para. 55): - Illicit income generation: cross-border transactions performed in the context of production of illicit goods and services or generating illicit income during a non-productive illicit activity. - Illicit income management: cross-border transactions that use illicit income to invest in assets or to consume goods and services. - Recording implications and distinctions (para. 56): - Illicit financial flows should be distinguished from illegal transactions; illegal transactions that fit transaction characteristics are included in balance of payments statistics frameworks. - IFFs are broader and may include illegal transactions at some point, but not all IFFs are transactions and therefore not all would be recorded in macroeconomic statistics. - Flows arising from exploitation-type activities are not transactions and are excluded from balance of payments statistics because they involve involuntary transfers of resources (para. 56). ### Annex I — Key definitional and classification points - The guidance note provides distinctions between the informal economy and the non-observed economy, underground production, and undeclared production (Annex I, paras. 57–60). - The informal economy framework identifies and classifies informal productive activities, including production outside the SNA production boundary (para. 58). - Reasons for informal-sector production include: - low scale (no registration required), - inability to comply with regulation due to economic burden, - tradition and culture, or - limited/irrelevant/expensive regulatory systems (para. 59). - Undeclared production includes tax elusion affecting value added measures and includes non-illicit and illicit activities; differs from informality because some informal activities are not deliberate concealment (para. 60). ### Annex II — Glossary highlights (selected definitions and classifications) - Classifications and definitions follow ILO classifications and ICSE-18 for work and job types (Annex II). - Informal employment criteria (selected) (Annex II): - Employers and Independent workers without employees are in informal employment only if they operate and own or co-own an informal household enterprise. - Dependent contractors are in informal employment if: - i) they operate and own or co-own an informal household market enterprise; and - ii) are not registered for tax; or - iii) are registered for tax but are not registered for or do not contribute to statutory social insurance. - Employees are in informal employment if their employment relationship is not in practice formally recognized by the employer in relation to the legal administrative framework and not associated with effective access to formal arrangements such as labour legislation, social protection, income taxation or entitlement to employment benefits; includes permanent, fixed-term, short-term and casual employees, and paid apprentices, trainees and interns who do not have access to statutory social insurance, paid annual leave and paid sick leave (Annex II). - Contributing family workers are informal if their job is not in practice formally recognized, including when carrying out work for an informal sector enterprise or when not registered for job-related statutory social insurance (Annex II). - Other forms of informal work: - Direct volunteering is always informal (Annex II). - Organization-based volunteer work, unpaid trainee work, and own-use production work are informal when not effectively covered by formal arrangements protecting or facilitating the worker’s activity (Annex II). - Reference on SNA production boundary: housing services of owner-occupiers are included in the production boundary and imputed in national accounts; most household-produced services are excluded unless employees are engaged (Annex II). *Source: Guidance note on the informal economy (ie1-gn-stat-framework-ie).* ### SECTION I: OVERVIEW ### SECTION I: OVERVIEW ### Purpose and scope - The guidance note aims to: - present recommendations for a coherent set of statistical recommendations necessary for measurement of work and economic activity in the informal economy; and - identify and delineate the statistical issues on the informal economy that should be addressed as part of the update of the System of National Accounts 2008 (2008 SNA) and the Balance of Payments and International Investment Position Manual, sixth edition (BPM6). *Source: IMF guidance note SECTION I: OVERVIEW* ### 36. The treatment of dependent contractors is currently discussed in the ILO working group for the ### ie1-gn-stat-framework-ie - 36. The treatment of dependent contractors is currently discussed in the ILO working group for the ### Treatment of dependent contractors - The treatment of dependent contractors is discussed in the ILO working group for the revision of the standards for statistics on informality (para. 36). - From a National Accounts perspective the preferred treatment: - Classify all dependent contractors as owners and operators of unincorporated household enterprises (para. 37). - That economic unit is part of the informal sector if it is not registered for tax or similar purposes and in the formal sector otherwise (para. 37). - Many new forms of dependent contractors facilitated by digitalization are dependent on large formal enterprises that provide a digital intermediation service; ties to these formal units can facilitate some formality for the dependent contractor (para. 46). - Dependent contractors facilitated by digitalization are treated as outlined above (para. 45). ### Illegal activities and informality - The 2008 SNA principle: “...illegal actions that fit the characteristics of transactions are treated the same way as legal actions.” Market transactions in illegal goods or services are to be recorded in the accounts if they meet transaction characteristics and the purpose is to generate income (para. 38). - Two kinds of illegal production (2008 SNA para. 6.43) (para. 39): - a) The production of goods or services whose sale, distribution or possession is forbidden by law. - b) Production that is usually legal but becomes illegal when carried out by unauthorized producers. - Policy and classification approach (paras. 40–42): - Most illegal productive activities would be part of the informal economy if informality principles are applied (para. 40). - From a policy perspective there is an incentive to transform production that is usually legal but becomes illegal when carried out by unauthorized producers into legal production arrangements; no policy need to exclude these from the informal economy (para. 41). - The Task Team proposes to exclude type a) illegal productive activities from the informal economy by convention and to supplement informality statistics with measures of type a) illegal productive activities (para. 42). - Production of informal production units of goods and services that are usually legal but become illegal when carried out by unauthorized producers should be included in the informal economy (para. 42). - A large expert group consultation of macroeconomic accountants and labour statisticians agreed with this proposal (para. 42). ### Non-observed economy, underground economy, and undeclared production - Conceptual distinctions (para. 43 and Annex I): - The informal economy overlaps to some extent with the non-observed economy, underground production, and undeclared production; these are conceptually different and have different objectives (para. 43). - Non-observed economy (paras. 57–58): - Describes economic activities not captured in regular statistical enquiries; contents vary between countries (para. 57). - Used in the context of achieving exhaustiveness of national accounts, focusing primarily on GDP (para. 58). - The framework for the informal economy does not focus on GDP exhaustiveness and includes production outside the SNA production boundary, going beyond GDP (para. 58). - Underground production (para. 59): - Includes legal productive activities deliberately concealed from public authorities to avoid taxes, social security, legal standards, or administrative procedures (para. 59). - Informal economy concepts include some underground production but extend beyond it, with multiple reasons for informal production (para. 59). - Undeclared production (para. 60): - Includes all production deliberately concealed to avoid taxes, social security contributions, or other laws; includes underground production and illicit/illegal production (para. 60). - Overlap with informal market economy exists for non-illicit undeclared production (para. 60). - Undeclared production also includes tax elusion that affects measured value added (para. 60). - Informal economy includes activities not part of undeclared production (e.g., very low-scale production not required to register) (para. 60). - Undeclared work includes illegal production and illicit activities; these are not by default included in the concept of the informal economy (para. 60). ### Other coverage issues when addressing the informal economy - Key issues listed: 1) Digitalization, 2) Informal cross-border flows (including tourism services for non-residents), and remittances transmitted through formal and informal channels (para. 44). VII.1 Digitalization (paras. 45–49) - Rapid digitalization has raised concerns about mismeasurement of economic activity; new activities (some informal) and new job types have arisen (para. 45). - Digital marketplaces enable household participation in production that can be part of the informal sector/informal economy (para. 47). - Classification of households using digital marketplaces as informal sector enterprises depends on: - 1) whether the sale of goods and services constitutes production, - 2) whether the production is done in a household unincorporated enterprise, - 3) is mainly intended for the market, and - 4) whether the enterprise is informal (para. 47). - The guidance note does not make recommendations on which household activities facilitated by digitalization should be considered production; current SNA definitions should be applied (para. 48). - Digital platforms can be a useful source of data on informal activity by linking formal enterprises and the informal economy (para. 49). VII.2 Informal cross-border flows (paras. 50–53) - Omissions in external sector statistics can arise because transactions are outside regular inquiries; some omissions relate to informal economy activities and others to formal enterprises (para. 50). - Examples: - Shuttle trade by unincorporated household enterprises may not be covered by customs recording and may fall within the informal economy (para. 50). - International trade in mobile assets (aircraft, ships) undertaken by large formal enterprises may be omitted for practical reasons but are not part of the informal economy (para. 50). - Informal cross-border flows pose data collection and estimation challenges because they involve transactions by small units and households not covered by regular programmes (para. 51). - The framework for the informal economy can be extended to account for external transactions related to production in the informal economy; such transactions would be recorded primarily in the current account and include (para. 52): - (i) Informal cross border transactions in goods (exports and imports): includes shuttle trade and smuggling of legitimate goods by informal units (para. 52(i)). - (ii) Informal services: primarily tourism services such as room rental and informal restaurants and bars; growth of online marketplaces for accommodation rental has allowed households to provide accommodation services to non-residents (para. 52(ii)). - (iii) Remittances transmitted through informal channels: workers without access to formal financial units may use informal money transfer systems and may be engaged in informal employment lacking appropriate employment permits (para. 52(iii)). - Income from informal economy production may be transmitted as remittances through formal channels (digital money transfer systems increasingly used) and may generate imports of consumer goods and services (para. 53). VII.3 Illicit financial flows (paras. 54–56) - Illicit financial flows (IFFs) are distinct from cross-border informal economy flows; the Conceptual Framework for the Statistical Measurement of Illicit Financial Flows (UNODC and UNCTAD, 2020) identifies IFFs as activities considered criminal offences and some behaviours related to tax and commercial practices (para. 54). - The Framework identifies four main types of activities that can generate IFFs (para. 54): - i. tax and commercial activities - ii. illegal markets - iii. corruption - iv. exploitation-type activities and financing of crime and terrorism - IFFs can emerge at two stages (para. 55): - Illicit income generation: cross-border transactions performed in the context of production of illicit goods and services or generating illicit income during a non-productive illicit activity. - Illicit income management: cross-border transactions that use illicit income to invest in assets or to consume goods and services. - Distinctions and recording implications (para. 56): - Illicit financial flows should be distinguished from illegal transactions; illegal transactions that fit transaction characteristics are included in balance of payments statistics frameworks. - IFFs are broader and may include illegal transactions at some point, but not all IFFs are transactions and therefore not all would be recorded in macroeconomic statistics. - Flows arising from exploitation-type activities are not transactions and are excluded from balance of payments statistics because they involve involuntary transfers of resources (para. 56). ### Annex I — Key definitional and classification points - The guidance note provides distinctions between the informal economy and the non-observed economy, underground production, and undeclared production (Annex I, paras. 57–60). - The informal economy framework identifies and classifies informal productive activities, including production outside the SNA production boundary (para. 58). - Reasons for informal-sector production include low scale (no registration required), inability to comply with regulation due to economic burden, tradition and culture, or limited/irrelevant/expensive regulatory systems (para. 59). - Undeclared production includes tax elusion affecting value added measures and includes non-illicit and illicit activities; differs from informality because some informal activities are not deliberate concealment (para. 60). ### Annex II — Glossary highlights (selected definitions and classifications) - Definitions of work and job, independent workers, dependent workers, workers in employment for profit, and workers in employment for pay follow ILO classifications and ICSE-18 (Annex II). - Informal employment criteria (selected) (Annex II): - Employers and Independent workers without employees are in informal employment only if they operate and own or co-own an informal household enterprise. - Dependent contractors are in informal employment if: - i) they operate and own or co-own an informal household market enterprise; and - ii) are not registered for tax; or - iii) are registered for tax but are not registered for or do not contribute to statutory social insurance. - Employees are in informal employment if their employment relationship is not in practice formally recognized by the employer in relation to the legal administrative framework and not associated with effective access to formal arrangements such as labour legislation, social protection, income taxation or entitlement to employment benefits; includes permanent, fixed-term, short-term and casual employees, and paid apprentices, trainees and interns who do not have access to statutory social insurance, paid annual leave and paid sick leave (Annex II). - Contributing family workers are informal if their job is not in practice formally recognized, including when carrying out work for an informal sector enterprise or when not registered for job-related statutory social insurance (Annex II). - Other forms of informal work: - Direct volunteering is always informal (Annex II). - Organization-based volunteer work, unpaid trainee work, and own-use production work are informal when not effectively covered by formal arrangements protecting or facilitating the worker’s activity (Annex II). - Reference on SNA production boundary: housing services of owner-occupiers are included in the production boundary and imputed in national accounts; most household-produced services are excluded unless employees are engaged (Annex II). --- _Source: https://www.imf.org/-/media/files/data/statistics/bpm6/iett/ie1-gn-stat-framework-ie.pdf_