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FM mentions progress in combating grey economy; prime minister expects more

Dana Reizniece-Ozola/flickr.com/Finance Ministry.
Latvia will continue combating grey economy in construction field and fight envelope wages, said Latvian Finance Minister Dana Reizniece-Ozola during the ministry’s Taxpayer Forum 2017 organized by the ministry on Wednesday, 13 December.

The minister said that grey economy combating efforts in Latvia has already provided good results, which is proven by the study performed by Austrian economic Professor Friedrich Schneider. His study reveals that the proportion of grey economy in Latvia was approximately 23% of GDP last year. In Lithuania and Estonia, on the other hand, grey economy does not exceed 24.9% and 25.4% of GDP respectively. «We often pride ourselves, but statistics confidently show that we can be better than our neighbours,» said Reizniece-Ozola.

She emphasized that reduction of grey economy also means higher tax revenue. For example, the state budget received EUR 60 million more in 2016. This year’s expectations go as high as EUR 75 million.

«A lot was accomplished in grey economy combating efforts last year. For example, cash transactions were limited and reverse payment mechanism for value added tax was introduced in several different industries. Also the State Revenue Service will soon complete a structural reform,» said Reizniece-Ozola.

The minister added that it is nonetheless important to focus on sectors in which grey economy remains a serious problem.

«Construction sector requires a unified work time database. It is also important to resolve the matter regarding the general agreement and resolve matters of responsibility. We will continue combating envelope wages in the security services industry and others. Eleven criminal processes have been launched in Latvia in regards to payment envelope wages. This is why I hope these criminal processes will be successfully concluded to demonstrate to society that our country’s penalty system is effective,» said Reizniece-Ozola, adding that the existing penalty system is rather harsh.

The minster also said that it is possible to combat grey economy by improving tax administration and collection. One possible solution mention by the minister was SRS’ efforts to create a unified tax account and make operational starting from 2021. SRS is also committed towards improving its analytical functions – changes to the audit methodology are planned to make it more comprehensive for businessmen.

Reporting tax fraud is no betrayal but rather a matter of competition, said Latvian Prime Minister Māris Kučinskis. He said that grey economy is a matter that has been talked about for a long time. «We can talk all we like about accomplishments in efforts to combat grey economy. Unfortunately, they are not as grand as we would like,» he added.

According to Kučinskis, it is important to move towards more rapid reduction of grey economy by means of strengthening the capacity of SRS’ analytical structures, speeding up investigations of tax fraud schemes and filling up holes in tax legislation.

«Businessmen should be encouraged to report tax fraud schemes and other illegalities, because it is a matter of competition, not betrayal. Raise the alarm if someone defrauds taxes! It is no less important to consider punishments in store for those that do commit tax crimes,» said Kučinskis.


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