RUSSIA'S SHADOW ECONOMY WORTH 90-110 BILLION DOLLARS

Chris Doss itschris13 at hotmail.com
Wed Oct 23 14:13:23 PDT 2002


Parlamentskaya Gazeta No. 199 October 2002 [translation from RIA Novosti for personal use only] RUSSIA'S SHADOW ECONOMY WORTH 90-110 BILLION DOLLARS By Yuri SAZONOV

The State Statistics Committee of the Russian Federation reported an alarming figure: over the past year, the number of people engaged in the shadow (informal) sector of the economy has grown by 3 percent. During the year, some 60 million Russians, including children and very old people, have been drawn into the shadow economy. This has never happened before.

Why are people trying to conceal their incomes from the state in the country which declared war on illegal incomes, surprising everybody by the lowest income tax in the world? The official statistical data show that one in every three people in rural areas, and one in every ten people in cities, work "informally."

There is no wonder then that illegal incomes evading taxation amount to 75-120 billion dollars a year, according to specialists' estimates. This is twice as much as the entire revenue part of the federal budget. This means that many enterprises live, so to speak, in parallel worlds, pleasing their employees, on the one hand, and underpaying trillions of roubles to the treasury, on the other. What is the reason for this? When reducing income tax on both wealthy and poor people to 13 percent, the authorities were sure that wages would, at long last, get out of the shadow and the budget would receive sizeable extra revenues.

At first, these hopes were gratified, and tax revenues began growing faster than the inflation level. Last year, over 220 billion roubles were taken out of the shadow sphere. But now we are back to what we have started from. Businessmen have started doubting the government's good intentions and, as before, gone into the shadow sphere.

Why is this happening? Is it easier for directors of enterprises to hide from tax inspectors than pay a small amount of income tax and sleep soundly?

The reason is that there is one more tax - on labour remuneration fund. And this is the very tax that deprives employers of their sleep. The thing is that out of every 100 roubles earmarked for wages a company must pay over 30 roubles for pension, social and medical insurance. Considering that a third of enterprises in this country are operating at a loss, many of them cannot afford to pay such amounts.

The sad conclusion is that over the years of reforms people have realised that the fight against the shadow sphere turns against them. How can an honest hard-working person survive in Russia where, according to the Prosecutor General's office, up to 60 percent of enterprises and organisations are controlled by criminal groupings? Many officials, politicians and businessmen are involved in this sphere. They are acting almost openly lobbying this or that government resolution or law.

It seems methods of struggle against the shadow economy have been tried and tested all across the world. In particular, the number of offshore zones is being reduced in many countries now. Their practice of bringing in huge amounts of untaxed capital provides a good breeding ground for all sorts of criminal structures. We have also taken the western countries' road. The situation has started to improve, but the number of such "holes" is still huge.

It should be said, however, that when the state is taking measures to put things in order, the criminal situation is immediately changing for the better. This is what is happening in Russia now.

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