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How To ‘Lighten’ Shadow Economy?

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CASE Ukraine Senior Economist Volodymyr Dubrovsky commented to Focus magazine on the Ministry of Economic Development and Trade`s data concerning the last years` reduction of the shadow economy by 6% to 34% of the official GDP.

We have a shadow economy in that sense in which it is present all over the world. This is a small business, which does not register and works ‘in the shadows’. For example, nannies, builders, plumbers, cleaners and so on.

This is the economic sector, which exists all over the world; including the most developed countries. No one can control it. Generally, those people do not pay taxes. The poorer the country is, the bigger this sector is. In addition, sailing of own-grown products in unorganized markets one may easily include to this part of the economy. That all also takes place in many countries.

Small businesses, which do not report to the state on their entire turnover, fill the next niche of the shadow economy. For example, enterprises that operate under a simplified tax system. No matter how the authorities try to persuade us that simplified tax system users harm Ukraine’s economy, both the first and the second sectors have quite a small share in the country`s economy.

The bill stipulates that it will be easier for the business to pay such a tax. However, on the other side, it provides for very strict measures to prevent the withdrawal of funds to offshore. Therefore, you can see the rigorous way large companies resist to this law. Under different reasons, they try to ‘drown’ it.

To reduce the level of the shadow economy, two politically difficult things need to be done. Firstly, Ukraine must gradually affect large players` interests. Because they avoid taxes on an industrial scale and make up the lion’s share of the shadow economy. Secondly, we must cut taxes well-proportioned to the way Ukraine`s economy goes out of the shadows.

July 15, 2017