Interesting, although the article has a number of fallacies. There's no way an "underground economy" can fail to bring about economic growth. Given that the private sector is generally known to allocate capital in a more efficient manner than government, the attendant growth should actually be stronger than when part of the cash is given to the taxman. (Don't get me wrong, I'm not against taxation). The fact that govt cannot capture the growth is another matter. The burden is not going to be lighter on current tax payers if the non-payers do pay... Unless parliament decides to reduce taxation rates, the govt decides to subsidize fuel / electricity / water costs and other cool things that other govts do. I really wonder how much our government finances our economic growth. Obviously, the gray economy is going to drain more and more cash from the formal sector with time. The other danger I see is that the owners of this cash are unknown - such people can emboldened to do strange things to protect themselves.... So, what is the solution? The govt can easily cash in by raising VAT on construction materials to something like 35%. Currently, builders of 20+ units of "low" cost housing are VAT exempt - so this income bracket is sorted. Those who want to build VAT free may be forced to for a cooperative or some vehicle that will somehow mainstream the cash. I also don't have any problem with all the gray money diverting to agriculture or manufacturing or even education. My 2 cents ________________________________ From: aki <aki275@gmail.com> To: Skunkworks Mailing List <skunkworks@lists.my.co.ke> Sent: Tue, November 30, 2010 11:40:31 PM Subject: Re: [Skunkworks] OT : Kenya's real estate boom fake or real? An interesting article on BD : Parliament’s Budget Office (PBO) says the answer lies in Kenya’s large and rapidly expanding underground or grey economy that is never captured in official data but now accounts for nearly half of the country’s Gross Domestic Product. Kenya’s underground economy has expanded rapidly in the past five years to become a mammoth Sh825 billion industry that is denying the government at least Sh275 billion in uncollected revenues, the PBO says. This means Kenya Revenue Authority (KRA) is tapping only half of the estimated Sh750 billion tax revenues potential, leaving those already in the tax bracket with the heavy burden of financing public services and ultimately economic growth and effectively means the national economy is nearly twice the current estimate of Sh1.6 trillion. The underground economy – commonly defined as commercial transactions that go unreported or unrecorded for tax purposes – has traditionally been made up of hawkers, small-scale farmers, carpenters, dressmakers, watchmen, construction workers and domestic workers (maids and gardeners). In the past couple of years however, the real estate and agriculture sectors have attracted big money without a commensurate rise in tax revenues raising doubts on the effectiveness of the revenue collection machinery. http://www.businessdailyafrica.com/Corporate%20News/Underground%20economy%20...