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Monday 20.11.2017 | Name days: Anda, Andīna

Shadow economy grows in Latvia but reduces in Lithuania and Estonia

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RULast year, the proportion of shadow economy in Latvia had increased. Estonia and Lithuania, on the other hand, demonstrated a reduction in their proportions of shadow economy last year. The most notable increase of shadow economy was noted in Latvia’s construction sector last year.

Latvia’s shadow economy index was 23.8% of GDP in 2013. In comparison with 2012, it had increased by 2.7 percentage points.

Lithuania’s and Estonia’s shadow economy indexes had reduced last year – 15.7% in Estonia (19.2% in 2012), says SSE Riga Sustainable Business Centre Director Arnis Sauka author of the survey on shadow economy index in Baltic States.

Lithuania’s shadow economy index was 15.3% in 2013 (18.2% in 2012).

Sauka explains that Latvia’s shadow economy is increased by omission of profits. As part of the previous survey, the researcher encouraged politicians to pay more attention to the matter of so-called envelope salaries, which remain a serious problem. Now it is more important to pay attention to omission of profits – the proportion of omitted profits in Latvia has increased by approximately 20%.

The volume of omitted profits in the Baltics remains roughly the same. The volume of envelope salaries has even reduced slightly.

Bribery levels had increased in Latvia last year. Shadow economy has increased the most in Riga and its outskirts, as well as Kurzeme. This applies the most to Latvia’s construction sector. On the one hand – this is bad news. On the other hand, however, this is also good news from a macro economical perspective – construction sector grow when the general situation in the economy improves, explains Sauke.

The survey reveals that Latvian residents’ satisfaction with the State Revenue Service has been growing over the past several years. Sauka estimates that this is good news for the service. However, he adds that SRS still has a long road to cover, because residents of neighbouring states are even more satisfied with their respectable revenue services.

Entrepreneurs’ general dissatisfaction with Latvia’s tax policy remains a serious problem – it is high and does not seem to change much annually. It is an important signal for Latvian politicians, says the researcher. Neither Lithuania nor Estonia has tax policy dissatisfaction levels as high as Latvia.

The situation is relatively bad in terms of business legislation as well, added the researcher. In 2013, 60.7% of entrepreneurs in Latvia were dissatisfied with the quality of Latvia’s legislation.

Sauka admits indexes regarding the government’s support for business are rather worrying, because more than half are dissatisfied.

Authors of the survey have concluded that shadow economy has the highest activity in small companies. According to Sauka, the more authorities discuss matters with small enterprises, the more it becomes apparent that the majority of businessmen get engaged in business because they do not want to pay taxes.

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