{"id":3896,"date":"2018-08-20T18:31:11","date_gmt":"2018-08-20T18:31:11","guid":{"rendered":"https:\/\/mersanlaw.com\/?p=3896"},"modified":"2025-06-30T22:20:58","modified_gmt":"2025-07-01T02:20:58","slug":"just-a-receipt-or-invoice-thats-all-thanks","status":"publish","type":"post","link":"https:\/\/www.mersanlaw.com\/en\/blog\/ticket-o-factura-asi-nomas-gracias\/","title":{"rendered":"Receipt or invoice? Just that, thanks\u2026"},"content":{"rendered":"
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Written by Tom\u00e1s Mers\u00e1n Riera, Partner<\/h3>

\u2709\ufe0f tomasmersan@mersanlaw.com<\/p><\/div><\/div>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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The Case of the City of Bucaramanga<\/strong><\/p>

Bucaramanga is a small, picturesque Colombian city located in northern Colombia. It is known primarily for its attractive parks and its vast archaeological, artistic, and historical heritage. However, not everything is beautiful and admirable in this city in the department of Santander. This small town is also plagued by one of the major ills that is all too common in our underdeveloped countries: the informal economy.<\/p>

According to the study titled \u201cThe Informal Economy and Unemployment: The Case of the City of Bucaramanga (Colombia),\u201d economists Gloria Isabel Rodr\u00edguez Lozano and Mayda Alejandra Calder\u00f3n D\u00edaz point out that there is a problem of unemployment and an informal economy in that city, driven by the limited capacity to generate formal jobs. One of the main reasons for this situation is the formal economy\u2019s inability to absorb the city\u2019s labor force. This, in turn, leads to the expansion of the informal market and, consequently, the growth of the underground economy.<\/p>

Like the situation in Bucaramanga, Latin America is rife with countless similar cases, in which the informal economy is a reality that hinders the development and prosperity of nations. And this reality stems not only from the market\u2019s inability to create formal jobs but also, in other cases, from factors such as weak institutions, corruption, smuggling, and crime, among others.<\/p>

Now, before we continue, let's take a look at what we mean when we talk about the informal economy.<\/p>

Informal or underground economy\u2014what does that mean?<\/strong><\/p>

The origins of the concept date back to studies of the labor market in the Third World\u2014specifically in Africa\u2014during the 1970s. British anthropologist Keith Hart first developed the concept, drawing a distinction between paid work and self-employment. He associated the term with the latter category. Subsequently, the International Labor Organization (ILO) institutionalized the term and gradually imbued it with some of the connotations we associate with it today, as a synonym for poverty, the black market, underemployment, etc.<\/p>

Some more modern definitions link the informal economy to actions by economic agents that do not adhere to institutional norms, or to income-generating activities that are not regulated by the state. According to the document \u201cInformal Economy,\u201d prepared by Alejandro Portes and William Haller for the United Nations Economic Commission for Latin America and the Caribbean (ECLAC), the underground economy encompasses the following:<\/p>

1) the illegal economy<\/em>: the production of goods and services prohibited by law (drug trafficking, prostitution, illegal gambling).<\/p>

2) the informal economy<\/em>: evasion of tax rules established in tax laws.<\/p>

3) the informal economy<\/em>: activities that violate the reporting requirements established by government agencies.<\/p>

4) the informal economy<\/em>: economic activities that disregard the cost of complying with the laws and administrative regulations governing their conduct.<\/p>

All in all, these four subcategories together comprise what could be broadly defined as the informal economy or the underground economy.<\/p>

To continue our analysis, let\u2019s now examine why understanding this phenomenon is important for our reality and our well-being as a community.<\/p>

Why is the informal economy so important? How does it affect me?<\/strong><\/p>

The underground or informal economy is more significant than we realize, and it affects us individually and collectively more than we usually realize.<\/p>

To begin with, activities that are part of the informal economy fall outside the scope of government controls and regulations. This leads to tax evasion and, consequently, fewer resources for the government. Example: If an empanada vendor decides to operate outside the system, they will avoid paying VAT on their sales, business registration fees and a commercial license, and IRACIS on their profits, among other taxes. Because they do not pay taxes, the government receives less revenue to invest in education, public safety, infrastructure, public health, and society as a whole.<\/p>

Within this cycle, in fact, informality has even more serious repercussions. It fosters corruption and crime. By circumventing government oversight and regulations governing commercial operations, economic actors tend to become corrupt and even engage in illicit activities, which are generally more lucrative. This is what typically happens in our country with drug trafficking, which, being an extremely lucrative activity with relatively low costs, in turn creates a climate of crime in the community.<\/p>

Eventually, since capital flows do not enter the system, the country\u2019s economic growth and people\u2019s well-being stagnate. Furthermore, a form of \u201cunfair competition\u201d arises between formal and informal workers, since the latter have lower operating and administrative costs in their businesses. This, in turn, creates a market distortion. A clear example of this situation is smuggling, the main characteristic of which is the substantial price difference between the smuggled product (lower production costs) and the legal product (higher production costs).<\/p>

Our Reality: The Underground Economy in Paraguay<\/strong><\/p>

According to the 2016 report by the NGO Pro Desarrollo Paraguay, as of 2015, the size of our underground economy had reached the staggering total of US$$. 11,010 million, resulting from smuggling, tax evasion, drug trafficking, etc.<\/p>

In other words, this is equivalent to:<\/p>

  • 39.6 percent of Gross Domestic Product (GDP)<\/li>
  • 60 % more than the 2015 General National Budget<\/li>
  • Three times Itaip\u00fa's total revenue (US$1.4571 trillion in 2014)<\/li>
  • 58 % more than the international reserves<\/li><\/ul>

    How can I help with the formalization process? Tax regulations that are easy to comply with<\/strong><\/p>

    As we saw earlier, one of the major aspects of the informal economy is related to tax evasion. Of course, in addition to tax regulations, there are also various municipal, departmental, customs, civil, and commercial regulations that serve as tools for formalizing businesses. However, let\u2019s take a look here at some of the most fundamental tax regulations for this purpose, which, incidentally, are easy to apply and comply with in our daily lives.<\/p>

    One of the laws that serves as the basis for the formalization of our economy is Tax Law 125\/91, specifically the section on Value-Added Tax (VAT), which, in Article 85, establishes that it is a obligation <\/em>Taxpayers (service providers and professionals) must issue and deliver invoices for each sale or provision of services they perform, and must retain a copy of each invoice for tax purposes.<\/p>

    This means, quite simply, that when you buy a product\u2014such as a soda at a gas station\u2014or hire a service\u2014such as an architect for a construction project\u2014the seller and the professional, in each case, must, <\/em>By law, we must issue a legal receipt for the transaction. The law is clear on this point, but we often fail to comply\u2014out of convenience, because we\u2019re in a hurry, or simply out of laziness.<\/p>

    Another regulation that promotes the formalization of the Paraguayan economy is found in the same body of law, as amended by Law 2421\/04. In this case, Article 8 of the Personal Income Tax (IRP) regulations establishes that net income (the basis for calculating the tax) is calculated by deducting from gross income the expenses necessary to earn that income, provided that they represent an actual expenditure and are properly documented <\/em>(legal invoice) and are at market price. In addition, this regulation includes a number of expenses\u2014not necessarily related to income generation\u2014that are also deductible for tax purposes. These expenses include those related to: living expenses, education, housing, health care, and food, among others.<\/p>

    The ratio legis<\/em>, or rationale, for this regulation is based on establishing an incentive mechanism for taxpayers to request legal receipts for their purchases, since such receipts serve as documentation for deducting the total amount payable in taxes. The logic is simple: the more receipts a taxpayer accumulates (a tool that contributes to the formalization of the economy), the lower the amount they will have to pay when filing their IRP tax return.<\/p>

    Conclusions. Let\u2019s be agents of change\u2026<\/strong><\/p>

    The underground economy is a complex problem, and solving and eradicating it is a gradual, long-term process. As we have seen, informality is a vicious cycle that leads to poverty, crime, poor-quality public services, and reduced income. In short, it affects our well-being and quality of life.<\/p>

    However, as members of society, we play a leading role and possess a profound transformative power\u2014one that we often fail to recognize. Being an agent of change is a decision\u2014a matter of awareness, will, civic education, and responsibility. The sum of our individual efforts will translate into the collective effort of us all. Let\u2019s start with something simple but effective. So, dear reader, when you\u2019re asked at a store, \u201cReceipt or invoice?\u201d don\u2019t hesitate\u2014in addition to saying thank you, insist on receiving the legal receipt.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>","protected":false},"excerpt":{"rendered":"

    Escrito por Tom\u00e1s Mers\u00e1n Riera, Socio \u2709\ufe0f tomasmersan@mersanlaw.com El caso de la ciudad de Bucaramanga Bucaramanga es un peque\u00f1a y pintoresca ciudad colombiana situada al norte de Colombia. Est\u00e1 caracterizada principalmente por sus atractivos parques y su vasta colecci\u00f3n arqueol\u00f3gica, art\u00edstica e hist\u00f3rica. Sin embargo, no todo es bello y admirable en esta ciudad del…<\/p>","protected":false},"author":1,"featured_media":3897,"comment_status":"open","ping_status":"open","sticky":false,"template":"elementor_theme","format":"standard","meta":{"_kad_post_transparent":"","_kad_post_title":"","_kad_post_layout":"","_kad_post_sidebar_id":"","_kad_post_content_style":"","_kad_post_vertical_padding":"","_kad_post_feature":"","_kad_post_feature_position":"","_kad_post_header":false,"_kad_post_footer":false,"_kad_post_classname":"","footnotes":""},"categories":[13],"tags":[],"class_list":["post-3896","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-blog"],"_links":{"self":[{"href":"https:\/\/www.mersanlaw.com\/en\/wp-json\/wp\/v2\/posts\/3896","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.mersanlaw.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.mersanlaw.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.mersanlaw.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.mersanlaw.com\/en\/wp-json\/wp\/v2\/comments?post=3896"}],"version-history":[{"count":0,"href":"https:\/\/www.mersanlaw.com\/en\/wp-json\/wp\/v2\/posts\/3896\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.mersanlaw.com\/en\/wp-json\/wp\/v2\/media\/3897"}],"wp:attachment":[{"href":"https:\/\/www.mersanlaw.com\/en\/wp-json\/wp\/v2\/media?parent=3896"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.mersanlaw.com\/en\/wp-json\/wp\/v2\/categories?post=3896"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.mersanlaw.com\/en\/wp-json\/wp\/v2\/tags?post=3896"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}