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Sunday 23.02.2020 | Name days: Haralds, Almants

Shadow economy in Latvia is nearly twice as large as it is in neighbouring countries

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUCompared with 2013, the volume of shadow economy in Latvia did not change much in 2014. In Lithuania and Estonia, on the other hand, the volume of shadow economy actually managed to decrease that year. Such is the conclusion made in the survey of the shadow economy index in Baltic States published by Stockholm School of Economics in Riga and SEB Bank.

Latvia’s shadow economy volume, expressed in percentage from GDP, was 23.5% in 2014. Compared with 2013, Latvia’s level of shadow economy had decreased by a mere 0.3% of GDP. In Estonia and Lithuania, shadow economy reached 12.5%-13.2% of GDP in 2014. These two countries continued their long-term tendency toward a gradual decrease of shadow economy in their regions. It is concluded in the survey that the level of shadow economy in Latvia’s neighbouring countries has reduced by approximately 2.5-2.8% in comparison with 2013.

Although no changes have been observed in the volume of shadow economy in Latvia, what has changed is its composition. In 2014, the largest part of shadow economy in Latvia consisted of undeclared revenue from business activities in the form of tax avoidance, which currently comprises 46% of the total volume of shadow economy in Latvia. The second largest part of shadow economy in Latvia consists of envelope wages. The proportion of Shadow economy in Latvia’s construction field is calculated to be close to 48.9% (compared to 20% in Lithuania and Estonia). It is possible that partially because of construction industry that the highest level of shadow economy in Latvia was noted in Riga in 2014. Estonia and Lithuania both have the highest volume of shadow economy in this field, but its proportion is on a much more moderate level – 21% and 19%, respectively.

Enterprises remain relatively satisfied with the Latvian State Revenue Service and remain openly dissatisfied with the government’s employed tax policy and the level of assistance for entrepreneurs, as mentioned in the survey.

In general, Latvian enterprises are mostly dissatisfied with government structures. The same cannot be said about enterprises in Estonia and Lithuania. Nevertheless, the trends have been changing lately: there has been a decline in the level of dissatisfaction with government structures in Latvia and an increase in Estonia.

It is also stated in the survey that smaller and younger enterprises are more prone to getting involved in shadow economy than larger and older enterprises. The survey of 2014 also measures the volume of non-registered business activities in Baltic States. According to data from the survey, non-registered enterprises make up approximately 5-8% of all enterprises present in Latvia. They are mostly found in the construction industry.

Authors believe that the growing difference between the proportion of shadow economy in Latvia and its neighbouring countries somewhat reflects the weakened attempts of Latvian politicians to combat shadow economy. In order to reduce the volume of shadow economy, authors of the survey recommend Latvian legislators to realize the second package of large-scale measures against shadow economy, similar to what was done in 2010-2013. Reforms should focus on combating tax avoidance and construction industry, as these are the two most problematic areas.

Head of Latvian State Revenue Service Inara Petersone notes: «It is because of active work of SRS that it was possible to realize multiple measures to improve the business environment and amendments to regulations aimed at limiting and completely preventing any and all economic activities of dishonest taxpayers. We will continue realizing measures to reduce shadow economy in the future as well. I would like to point out – SRS is but one of many structures involved in the combating of shadow economy. Results of the survey only serve to demonstrate that only active and coordinated measures can help successfully combat shadow economy in a long-term perspective. I believe society’s acceptance of the necessity to pay taxes honestly and intolerance of tax avoiders also plays a major role. If we allow tax avoidance on any level, society as a whole will suffer in a long-term perspective. People will be unable to receive services from the government. This applies to social, education, law enforcement, healthcare and other important services!»

Chairperson of Latvian Chamber for Commerce and Industry Janis Endzins says: «Even though economic development of Baltic States is more or less unified, there are some areas in which Latvia lags behind its neighbours. One such area is successful combating of shadow economy, which has turned out fruitless in recent years. According to the published report, one reason is that Latvia’s volume of shadow economy remains incredibly high (23.5%) in spite of the positive dynamics noted in neighbouring states. Many experts believe this is merely the tip of the iceberg, and that the actual shadow economy in Latvia is much more expansive.»

SEB Bank social economics expert Edmunds Rudzitis states: «Shadow economy and envelope wages negatively impact the revenue of the state budget and distort competition in the country’s business environment. Short-term benefits received by individuals in the form of envelope wages are small in comparison with long-term risks the individual and the state will have to tackle as a result of that. Envelope wage recipients and those who do not declare their income will be at risk of poverty in the future. According to results of Pensionometer – 43% of all employed people fall under this category».


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  1. Name it says:

    Why have you become a shadow? Run abroad. Statistics says: as a duck you are flying in the end of a row. Try to become a winner. Hidden Taxes – problems With a Democracy.

  2. marie says:

    Depuis presque 4 ans, nous poursuivons une citoyenne Lettone du nom d’Anna Mutore née en 1962 qui exerce l’activité de traductrice à la Saiema, Elle s’est enrichie avec la complicité de sa fille Rasa Mutore en spoliant des français. Nous avons mis en évidence qu’elle n’a pas écrit sa thèse sur la majuscule distinctive. Nous avons identifié l’auteur…..
    Nous doutons qu’elle ait déclaré à l’administration fiscale Lettone l’argent qu’elle a soustrait. Elle entre dans la catégorie de l’économie de l’ombre,

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