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Unreported wages cost Estonia €106 million in 2016

Wages. Photo is illustrative.
Wages. Photo is illustrative. Source: (Reuters/Scanpix)

The percentage of people receiving all or part of their wages under the table totaled eight percent last year, which cost the government €109 million in unpaid taxes, it appears from a survey on the shadow economy conducted by the Institute of Economic Research.

In comparison, in 2015, 11 percent of people were paid in part or in full by means of envelope wages, costing the government €158 million.

Marje Josing, the director of the institute, said that in addition to the percentage of workers receiving undeclared wages, the extent to which such individuals' overall wages were made up of undeclared wages dropped from 54 percent in 2015 to 44 percent last year.

"While most people are not in favor of unreported employment, the share of people displaying a tolerant attitude toward the undisclosed payment of wages has increased during the past year," Josing said in a press release. "At the same time, the dissatisfaction of recipients of under-the-table wages with unreported employment increased significantly during the past year as well. The most important reason for dissatisfaction with under-the-table wages was the absence of social guarantees. Difficulty in securing a loan from the bank has become a more important reason as well."

While consumption of alcohol on which no Estonian taxes had been paid remained stable at 1.4 million liters, the market hare of such alcohol grew somewhat as a result of a decline in the domestic sale and consumption of legal strong alcohol.

A minor decline was registered in the percentage of people who had knowingly purchased illicit alcohol, with the ratio of such people dropping from four to three percent on year. People's trust in the sellers of illicit alcohol grew meanwhile, however, which can be attributed to people buying alcohol from acquaintances who bring it across the Latvian border due to lower taxes on alcohol there.

The number of illicit cigarettes on the market has remained unchanged, however the market share of such cigarettes has grown as a result of a general reduction in smoking. In 2016, 16 percent of smokers had knowingly purchased illicit cigarettes, compared to 11 percent the year before. "Five percent of smokers purchased cigarettes from abroad via other people in 2016, and the share of such smokers increased for the second year in a row," Josing observed. "While previously cigarettes were acquired most often in Russia, last year Latvia emerged as the place where people most often went to purchase them."

Janek Leis, head of the Information Department of the Estonian Tax and Customs Board (MTA), said that unreported wages continues to be the biggest cause of damage to the Estonian economy.

"Even though damage resulting from the payment of envelope wages has declined by almost €50 million to €109 million according to the survey, its negative impact on teh social guarantees of employees, equal competitive conditions for businesses and the availability of public services is still remarkable," he said.

Leis also noted that the negative fiscal impact of cross-border trade in alcohol is estimated to have totaled €4.5-6 million in the first five months of the year.

Editor: Aili Vahtla

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