BANGKOK — Thailand’s informal economy has enormous value but is not included in the calculation of national income, leading to significant inaccuracies in GDP figures. This discrepancy hinders effective economic planning and calls for reform, say Thai economists.
As debates continue over innovative ways to expand the Thai economy, inadvertently creating avenues for the shadow economy to thrive, Dr. Anusorn Thammajai, Dean of the Faculty of Economics and Director of the Digital Economy, Investment and International Trade Research Center at the University of the Thai Chamber of Commerce, recently published an analysis of the country’s unofficial economic activities.
He also outlined a three-part strategic framework for integrating these activities into a regulated and transparent system.
Dr. Anusorn highlighted the findings of the International Labor Organization, which show that Thailand’s informal economy includes workers who have no formal labor protection or social security. These workers work outside the social security system.
Gray Businesses
In addition, social and economic activities in Thailand also include illegal sectors, such as companies run by “gray Chinese” who expand illegal businesses in the country. These range from drug trafficking, smuggling and the trade in substandard goods to forced labor, sex work and illegal gambling.
Economists categorize these activities into four types:
- Legitimate and openly declared income: Income from formal economic activities within the legal framework.
- Legitimate but undeclared income: Income from micro-enterprises such as street vendors or household businesses that often go unreported.
- Non-monetary income: Barter systems or labor exchanges that operate at the community level.
- Illegal or semi-legal income: Activities such as gambling, prostitution, drug trafficking and unofficial transportation services that often arise from systemic inefficiencies or obstacles within the formal infrastructure.
The informal economy, which is often cash-based, is estimated to account for at least 50 percent of Thailand’s GDP, making it one of the largest in the world. However, most studies on its size date back to 2007–2017, calling for updated assessments to reflect current realities, especially given the growing influence of gray Chinese capital in Thailand.
A 2000 study by Pasuk Phongpaichit and colleagues identified six informal economic activities, drug trafficking, arms dealing, oil smuggling, prostitution, migrant labor and gambling, which account for about 13 percent of GDP. Such activities are more prevalent in developing countries, often due to weak law enforcement, high levels of corruption and bribery, which allow illegal actors to flourish.
Three Strategic Pillars
In the face of these challenges, Dr. Anusorn proposed three strategic pillars to effectively manage the informal economy:
1) Integrate the informal economy into the formal system: Promote regulation to generate tax revenues, create jobs and improve the income opportunities of those involved.
- Risk management and social protection: Ensure the well-being of those working in the informal economy and ensure their active participation in regulatory discussions.
- Mitigate social impacts: Tackle illegal business and prevent threats to social order by minimizing disruption to social harmony.
2) Legalizing gambling could be part of this broader strategy and benefit the economy while minimizing long-term societal harm. The establishment of entertainment complexes, including casinos, could promote tourism, bring underground activities into the formal economy, generate taxes and reduce corruption.
However, careful monitoring is essential to reduce negative impacts such as household indebtedness, family problems and crime.
3) Global benchmarks show that countries with entertainment complexes have made significant financial gains. Macau, for example, earns 32 billion dollars annually from gambling, the USA (Las Vegas) 30 billion dollars, Singapore 12 billion dollars, South Korea 9 billion dollars and the Philippines 6 billion dollars.
Singapore, whose natural tourist attractions are limited, generates 4 percent of its GDP from integrated entertainment businesses, with 30 percent of tourists visiting these complexes.
In Thailand, with its numerous attractions, the need for such complexes must be carefully considered. Tax rates for casinos should be between 15–30 percent (compared to Singapore’s 17 percent and Macau’s 35 percent).
If 30–50 percent of the projected 39 million foreign tourists in Thailand use these facilities, the state could earn 30–40 billion baht ($870-1,160 million), while the operators’ revenue would be between 50–80 billion baht (1.45 – 2.3 billion).
Nevertheless, legalized casinos must avoid becoming hubs for money laundering or unethical practices. The state and society must work together to enforce strict regulations. Clear, transparent and accountable legal frameworks are crucial to boost investor and public confidence while preventing corruption.
The number, scale and location of these projects should be carefully matched with market demand to ensure appropriate investment decisions.
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