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A look at the problems that hurt a country’s economy

Economic crimes exist in many forms and are subject to punishment in accordance with their degree of severity. Although economic crimes are common in the developing countries, the developed part of the world, too, is not immune to such acts. In this article, some kinds of economic crimes are briefly discussed.

1. Illicit business activity

Business activity undertaken in violation of law, including creation of business agreements that the law of the land prohibits, qualifies as illicit business activity. These activities could range from human trafficking to narcotics trade, prostitution, smuggling, etc.

2. Illegal financial activity

Illegal financial activities are non-violent in nature but they result in financial losses, caused due to many of its hues, especially fraud. For example, hundreds of Pakistani ATM users lost their hard-earned money because of unauthorized cash withdrawals by hackers in recent months. Other illegal financial activities include money laundering, corruption, tax evasion and providing funds for financing organized crimes, etc.

3. Pseudo-business activities

Business activities carried out with notional capital and notional goods are called pseudo-business activities. For example, a number of dummy businesses/firms registered under the Sales Tax Act, 1990, generate fake/flying invoices to benefit genuine businesses soar to facilitate them in benefitting from concessionary regimes and special schemes introduced for export-oriented sectors including textile, leather, sports, carpets, surgical instruments, etc., under SRO 1125 of 31 December 2011. Such businesses do not conduct actual sale/purchase of goods or services, rather they engage only in paper transactions. The “Double Shah” scam that caused huge financial losses to thousand of Pakistanis provides an apt illustration of pseudo-business activity.

4. Customer deception

Consumers have the right to expect that a business will not mislead or deceive them relating to the value or quality of goods and services it provides. It is illegal to mislead consumers through luring advertisements and giving a misleading impression about price, value and quality of the product. Examples of deception include a transport company giving the impression that it takes freight by air, but it actually sends it by road. Likewise, a real-estate agent advertises a property for less than the minimum price provided by the seller.

5. Tax evasion by legal entities

Legal entities are those bodies or business concerns that are established and perform functions in accordance with the prevailing laws of a country. The primary objective of a business entity is to maximize profit. And because profits are taxable, business entities try to shift portion of profit to jurisdictions which are either tax havens or where tax rates are low. Such business entities exploit tax laws and rules regarding transfer pricing, thin capitalization, etc. Because of complex business models such as matrix-type organizational structures, hub structures and co-entrepreneurial structures, the tax authorities are not able to cope with the issue of base erosion and profit-shifting by the large business concerns. Some other ways of tax evasion include non-declaration of correct revenue receipts, overvaluation of expenses, claiming expenses not allowed under tax statues, etc.

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About Bilal Hassan

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The writer is a graduate in Taxation Policy & Management from Keio University Japan and has certification in International Economics and Law & Economics from Faculty of Economics Keio University, JAPAN. He can be accessed at

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