**MONGOLIA'S INFORMAL** SECTOR -

**Notes**

**61**

66.The sample included 15 kiosks, representing the "high end" of the informal spectrum, and 15 street infonnals, representing the "low end." Results were nearly identical for kiosks as for the street informals. This survey was conducted by the author for the purposes of this study.

The results in this section are consistent with Centre for Social Development, 1996, whose field work suggested: "an informal credit and loan system operates readily within the informal sector, mostly between friends and relatives. ... It is interesting to note that none of the informants mentioned borrowing money from a 'money lender,' they always said family, friends and acquaintances, although the latter could be the equivalent. Pawnbrokers, called 'lombards,' do exist but these were never mentioned as a source of initial investment, they are primarily used for livelihood purposes." p.48.

# 67.Seventy percent of those loans were taken out in 1997.

68.Owing to the nature of the activities, many informals can avoid paying their tax. But the tax collectors are vigilant in Mongolia, and a large number of informals seem to comply with the rules. The percentages of a sample of activities reporting that they were registered are as follows: 100% of kiosks, 74% of full-time taxicabs, 63% of boot repairmen, 31% of vendors of used auto parts, and 0% of the petty retailers of chewing gum, cigarettes, and soft drinks. (All based on the informal sector surveys conducted by the author.) 69.The relative stability of incomes also influences the incentives to engage in informal activities. Informal sector incomes are usually assumed (and empirically shown) to be less stable than those of formal sector employees. But some informal occupations may be more immune to the income erosion caused by inflation than is wage income. Specifically, informals engaged in distribution can adjust their prices, and their incomes, to keep pace with inflation, while the wages of employees in the fornal sector lose spending power. Indeed, the distribution sector in Mongolia is one in which informals are flourishing.

70.There are 8 official holidays. Annual leave ranges from 24 to 35 working days, depending on years of service. The law is less clear about sick leave. There also exists very liberal maternity leave, which applies to a subset of employees. The adjustments to formal sector income are based on 50 paid days away from work per year. The adjusted income of formal sector occupations are overstated somewhat if the true number is less than 50. It should be noted that the leave, holiday, and maternity leave are guaranteed for all (formal sector) employees in Mongolia, not just state employees.

71 .Social insurance contributions paid by employers are 18% of salaries. Health insurance contributions are currently 6% of salaries, at least half of which must be paid by the employers. For the purposes of this chart, it will be assumed that the emplloyer pays the entire 6%.

72.Incomes of informals working for foreigners have intentionally been omitted from discussion, here, as they would have distorted the overall picture. Mongolians working for foreigners, formally or informally, earn many multiples of the incomes displayed here.

# 73.Described above.

74.Figure 5 highlights the informal sector occupations that are specifically addressed in the _Informal Sector Income Tax Law._ Those with zero values are not specifically addressed, and are probably the occupations for which the law is most difficult to enforce. It should be noted that while a state employee has no alternative but to pay the tax - it - is withheld from pay a participant of the informal sector may or may not be diligent in paying their taxes. The rates of compliance, for some activities have been presented earlier. See also Table I and the tables in Appendix B.

75.One local official interviewed said it helped if the application stated that they had many children and really needed the income to survive.