Economists have called for the imposition of taxes on foreign labor activities and warned against the phenomenon of hidden economy.

The term ‘hidden economy’ refers to any undeclared economic activity carried out by a group of people in non-compliance of laws. It is estimated that 70 percent of foreign labor in the Kingdom practice professions different from that written in their residence permits.

In a study published by the World Bank, the Kingdom ranked 24 out of 151 in terms of the size of activities practiced within the hidden economy.

Dr. Abid Al-Abdali, professor of economics at Umm Al-Qura University, says it is difficult to measure the size of hidden economy activities because these activities are carried out covertly. It is also difficult to determine the type of hidden activities which involve drugs, terrorism, corruption, bribery and crimes. All these activities have a great impact on macro- and micro-economy as well as social security and stability.

Poor regulations and failure to enforce laws are the main two causes of the spread of this phenomenon across many governmental sectors, he pointed out. “Corruption has spread like fire in different sectors due to poor laws fighting this problem. We should benefit from the experience of foreign countries which implement just and fair labor laws in their markets.

Indications say that commercial fraud has reached 19 percent in the Kingdom’s markets, which means that commercial fraud is rampant and there are no laws fighting it.”

Dr. Al-Abdali stressed that foreign labor plays a big role in the increase in hidden economy activities. The main reason lies in the system of sponsorship which does not meet the needs of local economy and which brings over an army of unqualified labor into a prosperous market. These workers control markets and services and drain local economy through their annual financial transfers which amount to SR100 billion annually. Dr. Al-Abdali called for restructuring the sponsorship system in the best interests of the local economy, especially in light of the fact that the Saudi market has eight million foreign workers. “I think it’s high time the activities of foreign workers be regulated and taxed so that the local economy benefits from the huge amount of annual transfers workers make free of charge.

Dr. Majed Garoub, chairman of national committee of lawyers, Jeddah Chamber of Commerce and Industry, talked about the importance of the economic study conducted by Saudi researcher Dr. Hamid Al-Mutairi about hidden economy.

He said: “We can use the study as a roadmap to guide us in pinpointing what constitutes the hidden economy problem and how to tackle it in a way that improves the environment of investment, creates job opportunities and combats financial and administrative corruption.”

A key components of hidden economy is spurred by low wages paid to foreign labor, he added pointing out that it is illogical that a large number of foreign workers get paid a salary that ranges between $ 100-150 a month. Most of them end up taking supplemental work to bolster their wages.

Dr. Garoub called for updating the economic laws that had not been changed for the past 40 years to tackle the phenomenon of hidden economy.