Life in the shadows. How does the shadow economy of Ukraine

Жизнь в тени. Как работает теневая экономика Украины

What highbrow economists usually attributed to the shadow economy is a normal way of life for the Ukrainian families and recovery from excessive pressure of the state machine, as well as inefficiency of the state itself.

The share of shadow economy in Ukraine is high even by the standards of Eastern Europe. This figure is approaching half of GDP. But if you look at what is happening without rose-colored glasses and to add a bit of pragmatism, it is found that “shadow” refers to the everyday economic activities of a large part of the country’s citizens, writes Alexander Kramarenko and Denis Lavnikevich in No. 15 of the Journal Reporter. There is a dilemma: whether to accept the majority of our compatriots as criminals, or to overestimate the role and place of the shadow economy in Ukraine.

Game definition

The “shadow economy” is a very popular topic for discussion in society and beneficial for politicians. But when the informal economy argue people slightly familiar with the issue, there is confusion: they bring down in one heap all the blatant crime, the crime of corruption, “garage” one HUNDRED and Marya Semyonovna, selling from the sidewalk dill from my garden. So let’s start with, let us examine the definitions.

Here’s an example: a forestry on Severo-the West of Ukraine under the guise of “sanitary logging” harvest valuable timber for furniture production. Local officials are aware of and share. Then in the open, cars, this timber is sent to Europe. While passing through customs in the accompanying documents indicated “wood”, although everything (including customs) can see perfectly good thick oak logs.

Here everything is done openly and with the semblance of legality, under the patronage of civil servants of different levels. But illegal after the fact. Is a corrupt economy, joined with the specific crime. This can be attributed to the shadow economy? Partly Yes, because there is no crime in transport. Are not criminals and lads from the surrounding villages who felled the forest, but those who hired them are criminals, of course.

About the same and around illegal mining of amber: “slaves” of the fishery is just a shadow employment and “foremen” and “implementers” — the crime at the ears.

Drugs? Trade people? It’s clean, uncomplicated crime. Here everything is clear. And it is not the shadow economy.

Another example: Jeanne V. this is my grandmother’s one bedroom apartment in Kiev. Formally spelled it herself. But Joan lives with her husband and children, and the apartment rents for 9,000 UAH per month. Without signing anywhere and without paying taxes. Her husband, Peter Miller every day taxi — an hour and a half to work and a couple of hours after. Customer receives from the service taxi, which pays a specified percentage of the cash. No meters, permits and other documents for private carting Peter no, he does not pay taxes, but traffic rules are respected. The shadow economy as it is — earnings illegal, but legal activities.

Or that Vera Alexandrovna — teacher with experience. Officially working as a school teacher of mathematics. Informally — at home as a tutor preparing students for University entrance. Officially this activity does not exist. But the guys are doing, the parents are grateful. A friend of the Light of Faith with her sister Mary since childhood, I loved to mess with hair — any hair-Curling. After some discussion with their husbands and having received their approval, Sveta and Masha rented a tiny apartment and opened the small beauty salon with only two jobs — for a narrow circle of acquaintances. They have low prices and its clientele, satisfied with the ratio price/quality. Taxes, official registration of… well, you understand.

This third group of examples — this is the shadow economy in its pure uncomplicated form. Its main “engines” — ordinary people who arrange their lives without relying on state aid. They are not willing to go to outright crime, they can’t live with corruption proceeds as “sitting on permits” the official said. But they do not see anything criminal in the fact that are not registered and do not pay taxes, because they believe the state as a stationary bandit, engaged in racketeering and providing nothing in return.

Жизнь в тени. Как работает теневая экономика Украины



Estimated volumes

Interestingly, in recent years, experts have more or less come to a single point. Now the size of the shadow economy of Ukraine about the same evaluate state agencies, international organizations and independent experts in the country.

For example, the Ministry of economic development and trade of Ukraine estimates the shadow of Ukraine’s GDP according to two different methods. In the first case, 33% of shadow GDP, in the second case it is 38%. It is interesting that both methods of assessment internationally, they’re just different.

The international monetary Fund estimates the shadow economy in Ukraine in 42.9% of the total GDP. This figure is given in the report of IMF experts, Leandro Medina, and Friedrich Schneider of the University of the name of Kepler (Linz), estimated the size of the shadow economy in 158 countries around the world. According to the same report, the shadow economy in Russia account for 33.7 per cent of GDP, Belarus — a total of 32.4% of GDP. Among the EU countries closest to Ukraine were Cyprus, with its 32.2 per cent of the “shadow” of GDP. But in Poland, this indicator is twice lower and 16.7%, in the Czech Republic — 10,5%.

Ukrainian experts from the Institute of civil liberties believe that the “shadow” is 40-45% of the Ukrainian economy. All depends on the specific sectors of the economy. If the financial sector is only 2-3% of the shadow turnover in retail consumer goods — about 60-70%, in the sphere of taxi — 80-90%. Also major sources of undeclared cash flow — leasing residential property (80-90%) and a small agricultural enterprise (70-80%).

International studies, which at different times met the author of these lines, show that in all post-Soviet countries the informal economic activity is most pronounced in such sectors as retail trade of household appliances and computer equipment (here — their repair and maintenance), clothing and food; automotive industry; the services sector for construction and repair; personal services. To a lesser extent, in the segment of catering.

What does the government

The state, of course, the shadow economy is struggling. It cannot, because otherwise, truly free and uncontrolled economic relationships between people can easily make unnecessary the state itself. The anarchists about it since the nineteenth century write…

However, a holistic strategy to fight shadow economy in Ukraine is still there. Why?

Partly because on the shadow economy obtained a fair amount of the proceeds of corruption. Partly because public morality rather support shadow economic relations than public control and transparency. Accordingly, even those who lead non-legal economic activity, are feeling “in his right” and begin to defend themselves organized in response to regulatory actions of the state.

Suffice it to recall the events of a month ago — “riot “eurobserv” across the center of Kiev and blocked the Verkhovna Rada. That is, people who are openly circumvented customs regulations when buying used cars in Europe, began publicly to demand his rights and require a different attitude, the legalization of their purchases retroactively.

In a totalitarian state such protest in a few minutes “rolled up to the asphalt”, not hesitant and armored vehicles on the street to bring. The country’s “old democracy” would be dealt with separately — draconian fines and forfeiture of the car. In Ukraine the owners of the “EuroBLECH” listened, to suppress protests did not, but passed a bill, No. 8487, and No. 8488. They have a sharp cut in excise duty for import cars, as well as the lifting of the ban on customs clearance of cars not conforming to Euro 5 standards.

Жизнь в тени. Как работает теневая экономика Украины



So while the fight against the shadow economy is reduced to disjointed actions: gaining control over cash flow and narrowing their scope, increase the minimum wage, fines for illegal employment, the punishment for illegal enterprise. By the way, are the bills about “EuroBLECH” contain such an innovation as the most severe punishment for the use of uncleared cars in the business.

The hunt for cash

The case surely goes to the fact that in Ukraine to fight against the shadow economy (not criminal activities, but just not taxed,) are beginning to apply the tools of financial monitoring. The financial monitoring, the ultimate aim of which declared the prevention of drug trafficking, human trafficking, illegal arms trafficking, financing of terrorism and production of weapons of mass destruction. But not the fight against tax evasion.

For example, the Ministry of Finance provided at the end of July the draft law On amendments to some legislative acts of Ukraine in the sphere of prevention and counteraction to legalization (laundering) of incomes obtained in a criminal way. In it the Ministry of Finance suggests to enter the client’s identity and establish the goal of conducting financial transactions for transfers without opening an account in an amount equal to or in excess of 30 thousand UAH.

If the bill is passed, all money transfers (including international) in the amount of 30 thousand UAH (about $1.106) should be accompanied by complete information on the payer and the recipient of the transfer (including the place of residence, series and number of passport, identification code). Transfers in the amount of less than 30 thousand UAH will be accompanied by minimal information about the initiator and the recipient (name or name of legal entity, account number or account number for a financial transaction that allows one to track). Banks and financial companies were forbidden to serve the transfer of funds in the absence of this information.

In turn, the national Bank actively supports the transition to electronic payments ordinary individuals. It is clear that as a result of these measures not only income but also costs citizens gradually become visible to the tax authorities and law enforcement agencies.

Advanced in this case is already quite far from the 4 January 2017 in Ukraine there are three types of restrictions in cash payments:

of enterprises (businesses) among themselves in during one day in the amount of 10 thousand UAH;

– between a natural person and enterprise (entrepreneur) within one day in the amount of 50 thousand UAH;

– between physical persons under contracts of purchase and sale, which are subject to notarization, in the amount of 50 thousand UAH.

Personal vs “import”

Tax administration pushed through new rules for the importation of goods by individuals (effective 1 January 2018). Without duties it is possible to import the goods in hand or accompanied Luggage on the amount to 150 euros (at the airports — up to 1.000 Euro) and a weight up to 50 kg. these are the rules for those who were missing in Ukraine more than 24 hours and stay in Russia not more than once every 72 hours. With more frequent check-without taxes to import goods in the amount of 50 euros. First tax-free goods worth up to 500 euros and weight to 50 kg could be imported each day, is based on what the business of many “Shuttle-traders”.

From 1 January 2019 will act also limits on tax-free shipment of goods to individuals in international mail and Express shipments. Parcels can be a maximum of three for one month worth up to EUR 150 each. Beginning with the fourth parcel, they will be subject to tax, duty and excise.

As no cryptocurrency? In the fall of 2017 in the Verkhovna Rada gathered four of the bill on state regulation of turnover of cryptocurrency.

However, while Ukrainian entrepreneurs and companies that work with cryptocurrency, as a rule, avoid official registration due to the uncertain legal status of cryptocurrency in the country. Legislators wanted to introduce taxation of operations with scriptactive (cryptocurrencies, tokens, etc.), but not legalized even legal terminology for the stock market.

Factor 2014

Ukrainians live and build economic relationship, not much counting on the participation of the state — if only it didn’t hurt. Ukrainian is willing to pay for social services, but that the government was not interested in his income.

Ukrainian model assumes personal responsibility for himself and his family, the propensity for self-employment and total distrust of the state and its officials.

The fact that the economic science is perceived as shadow economic relations in Ukraine is an absolute social norm. In the West there is the concept of “tax morality”: the citizen realizes that he must pay taxes to get social benefits from the state. Ukraine has its own “tax morality”: to pay taxes makes no sense, as they are still stolen. It is better to pay a specific person for a specific social services.

Good or bad? A comprehensive answer was given in 2014, when in the face of Russian aggression Ukraine has been without an army, without hryvnia to the Treasury accounts and no currency reserves of the national Bank.

Ukrainian society is pushed impotent and thoroughly looted the state machine to the side, to the expense of their own savings, shadow income, volunteers collect donations to pay for the restart of the country’s defense and public institutions.

The first four months of defense against the Russian aggression were paid mainly in copper penny from ordinary Ukrainians, for exchange cache from the small and medium business, and also for money from offshore accounts as business. The state woke up and began to move only to fall. If not for the shadow economy, the army would not have been able to raise to his feet so quickly.

In 2014-2015, the Ukrainian economy has not collapsed into the abyss only thanks to the dozens of billions of dollars and euros, which were “under the mattress” ordinary Ukrainian citizens. Statistics of the NBU shows that the population spent their cash, thereby supporting the exchange rate, and the demand for goods, services, and even employment.

If space, which really is the “shadow” of Ukraine was not, the country would have crumbled. And now the state long, carefully and very honestly need to prove to citizens that it has the right to ask them about shadowing. Too fucked up before the people, politicians, government officials and other guardians “transparent”, “white”, “legitimate” economy.

What the expert thinks

Galina Tretyakova, Director of the Institute for civil liberties

I have quite a specific attitude to all this. I believe that the more restrictions — the larger the shadow economy. But more liberalization is less than the size of the shadow economy. Think it has to do with the attitude of Ukrainians to freedom as such. As soon as they begin to stop different prohibitions, they “go into the shadows” and develop yourself there, completely oblivious to the fact that the government is doing.

Therefore, the current state restrictions, and not working. For example, the restriction of cash turnover is the limit of 50 thousand UAH for large purchases. I was recently at the notary for their business and at the same time asked: “Who ever follows the rules? You check whether the transaction is within the 50 thousand?” I was told that there is no control. The lack of control is directly related to the fact that Ukrainians prefer to give a bribe (and not to pay tax own government) and through corruption to bypass all written on paper limitations.

In addition, I believe that in order to limit the shadow economy, it is necessary to carry out a number of actions that relate to the household as such. We actually lost count of the household economic unit. And he had no desire to go to the shadow part of the economy, the need to allow households to individuals to pursue economic activity without registration. For this you need to radically change the taxation of individuals, go to taxation of households. We need to get approach to to a natural person to legal to the taxation of households as a subject that has a lot of income, many expenses, but there is a certain income that is not taxed.

When everyone starts to think about their taxes, understand how much they pay, become richer, then leaves the shadow turnover, because it is a disagreement with the country’s tax policy as such.

Officials of the “shadow”

Volodymyr Groysman, Prime Minister

Over the past [2017] year attracted from customs plus 70 billion, it’s not the end. I believe that we can attract. Additional revenues were made possible by the abolition of shadow schemes and effective fight against corruption at the border.

Andriy Reva, Minister of social policy

The truth is that we have 40% of the economy in the “shadow”. If we take into account the real income of our citizens — not those declared and those that actually have — would have been very different statistics. But statistics operates the official data.

Miroslav Prodan, the head of the State fiscal service

In July, the state budget received more than UAH 29.7 billion. This is 3.7 billion UAH more, when compared with July 2017. And with respect to the June 2018 — more than almost 3.2 billion UAH…

But the increase in income (in the budget) is not the only result of the struggle with the shadow. Due to the reduction of “gray” goods flows increase market share, which is the legal importers. Blocking the way of illegal imports, we create the conditions for investment in the development of Ukrainian origin.