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Proportion of envelope wages in Latvia’s construction sector dropped to 32.1% last year

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The proportion of grey economy in Latvia’s construction sector dropped in almost all field last year. For example, while the proportion of envelope waged in 2016 was 34.6%, last year it dropped to 32.1%, says manager of the Partnership of Latvian Construction Entrepreneurs Baiba Fromane.

The proportion of companies that do not declare income has declined from 30% to 26.7%, non-declaration of the number of employees has declined from 20.5% to 17.6%. Bribe level in the industry has increased from 15.1% to 15.5%. Nevertheless, this is still a decline when compared with 2015, when bribery level in the industry was 17.9%.

The general grey economy volume in construction sector has declined by nearly five percentage points over the course of the last two years, Fromane said. In 2015, grey economy proportion in the construction sector was 40% (38.5% in 2016 and 35.2% in 2017).

«A major breakthrough was achieved in efforts to reduce grey economy – no other industry experienced a five percentage point grey economy decline in the last two years. There is still a lot of work left to do. The initiated reforms are aimed in the right direction. Results are expected in two years,» explains Fromane.

She says the main factors that have facilitated reduction of the grey economy include the general agreement for minimal wages, introduction of an electronic work time monitoring system, more active work by State Revenue Service and expansion of application range for reversed added value tax in construction sector.

«These four factors will have a major impact in the future. Companies interviewed as part of this year’s survey mentioned reduction of lower price principle in procurements and boosting of economic benefit principle as the most positive activities to help reduce grey economy. Businessmen have also mentioned growing readiness from the state to comply with economic benefit principle,» Fromane says.

According to her, companies of this sector are positive about introduction of an electronic work time accounting system. «Companies do invite thinking about reducing the electronic system’s introduction threshold. Businessmen believe this would help reduce grey economy volumes in objects in which construction volume is below EUR 1 million,» says Fromane.

The partnership’s manager also adds that the goal is reducing construction sector’s grey economy’s proportion to the average level in the country in the next several years. «We don’t want to compete with other industries. We do want fair game rules for our country’s construction sector, so that we can fight for productivity and quality, not just fight for survival,» said Fromane.


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