Transcript Inspecting the shadow economy - presentation

Inspecting the shadow economy
Jovana Stefanovic
Shadow economy - definition
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The part of an economy
which is neither taxed, nor
monitored by any form of
government. Unlike the
formal economy, activities
that are engaged in the
informal economy are not
included in the GDP of a
country.
Wikipedia
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At the end of February this year, inspections found 112
illegally employed people in 474 bakeries.
On the construction sites of Koridor 10 and 11, the inspections
found 18 workers without a contract.
The ratio of restaurants and venues in which the owners issue
their guest fiscal receipts, versus those which don’t, is almost
50:50.
In around 40 percent of the venues in Serbia, the inspections
discover something, which falls under the shadow economy
zone
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Shadow economy justifications: trial runs, supposedly higher
salaries;
700 000 people in Serbia are illegally employed;
The employees which dwell in the area of the shadow economy
are being denied their basic rights such as social and health
insurance, insurance against injuries at work, vacations…
Workers in the illegal employment zone
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Youth (15-24 yrs. old)
Lower educational level
Sectors: production of
pastries, painting jobs, car
repairs, beautician
services, jobs in agriculture
and the construction
industry
The shadow economy in Serbia has been `stealing`
around 30 percent of GDP per year
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Each citizen in Serbia looses a
monthly salary due to the
shadow economy;
While in Bulgaria (31.9%) and
Romania (29.1%) the share of
the shadow economy in GDP is
similar to the one in Serbia, in
Croatia it amounts to 28.4 %,
while in Germany it is 13,3. .
Percentage of the shadow economy in
GDP
35%
30%
25%
20%
Percentage of the shadow
economy in GDP
15%
10%
5%
0%
Serbia Romania Bulgaria Croatia Germany
30% of GDP = 3> billion Euros = 2600km of highways = 10 bridges
= health centers in every municipality in Serbia = the amount of money
NOT being invested each year in the growth and development of
standards, public sector improvement, construction and financing of
hospitals, kindergartens, schools, etc.
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A recent study conducted by IPSOS Strategic Marketing, shows that
92 percent of businessman considers the shadow economy the
number one problem when it comes to dealing with unfair
competition. Half of them, would not report a competitive company
that does business illegally, due to the belief that it is a matter of the
state;
A third of the interviewed businessmen don`t believe in the judiciary
system, and 44 percent of them have no faith in work conducted by
the inspections;
60 percent of citizens in Serbia feel strongly against the shadow
Trust represents the basis of the fight against
the shadow economy
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A large number of the so
called tycoons and their
companies owe the state
huge amounts of money in
taxes, are a bad message
for the majority of citizens
reasoning - if they do not
pay, then why should I?
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Legal uncertainty + a lack of
trust in state institutions +
complicated and nontransparent tax system +
high administrative burden on
the economy = 30 percent of
business transactions in Serbia
are conducted in the gray
area.
Factors which cause the shadow economy
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Rigid bureaucratic practices of
public institutions
Numerous and complex
administrative procedures
Frequent and extensive changes
in regulations
Non-transparent budgetary
spending
A general loss of confidence in
the government and institutions.
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High unemployment rate
High fiscal and quasi-fiscal
pressure, through tax, non-tax
and para-fiscal charges.
`The fight against the shadow economy always
implies a strategic game between the state and the
taxpayers. In this `game`, the state is constantly
inventing new strategies to combat the shadow
economy while the taxpayers are figuring out ways
to use it to their advantage`.
Milojko Arsic, Professor – Faculty of Economics
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Inspection system downfalls
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Numerous (36 different inspections within the competence of
12 ministries) and decentralized;
Lack of coordination is present among the numerous
inspectorates; all the inspections are conducted at the national
and local level without a presence of a coordination body;
Extensive regulatory framework: there are over a 1000
regulations (individual laws and bylaws), which regulate
the inspection procedure. Some of these regulations are
outdated ( from the 1980`s and 1990`s);
Inspection system downfalls
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Lack of preventive
measures and risk based
processes: inspections in
Serbia usually react
only when the damage
is already done;
Supposed lack of
jurisdiction over non
registered subjects.
Inspection system downfalls
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In a recent survey
conducted by the Center
for Democracy foundation,
almost half (47,81%) of
the citizens that
participated in the survey
had some resentment
towards the work of
inspections. Most often
these involved:
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Inefficiency
Being out of date
Inadequate behavior
Failure to provide
appropriate information
Incompetence
Inadequate resources
Unequal treatment of the
inspected subjects
Inspection system downfalls
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One of the most usual complaints heard regarding
the inspections in Serbia, is that the businesses which
operate legally are subjected to frequent and
numerous inspections, while those who work illegally
can`t be punished because they don’t formally exist,
therefore can`t undergo the mandatory checks and
be subject to adequate punishment.
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The newest Labor Law has vested the inspections with
significantly greater authorities then before: between
June 1st and September 30th 2014, the Labor
Inspectorate has carried out as many as 16.893
surveillances of 354 employers. As a result, 14.464
persons were employed.
Based on the inspectorate's surveillances conducted in
2013, only 4.290 persons got regular jobs.
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Labor Inspectorate novelties: direct access inspectors
have to the Central Registry of social insurance,
providing them with tools to identify illegal
employment on the spot, and take appropriate
measures without delay.
Minor offence warrants with possible fines witch
can go as high as 100.000 RSD.
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95 % of buildings in
Belgrade have been
built contrary to the
issued construction
permits;
Combating the shadow economy
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Adopting the Law on
Inspection Oversight
The Law should introduce
modern inspection standards
including prevention, risk
assessment, coordination and
cooperation, combating
corruption and the shadow
economy, and should
significantly reduce them.
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Fighting the shadow economy
without focusing on its causes
is not enough.
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Creating a favorable
business environment
and proper conditions in
which the state
authorities function
efficiently can prevent
or at least significantly
reduce the shadow
economy.
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A change in the social
system in which the
citizens are not afraid to
ask for a fiscal receipt
or report illegalities and
in which the illegal
entities realize they are
better off in the legal
area of business.
Thank you
for your
attention!