The shadow economy reduction plan offers to facilitate formal economy and burden informal economy
By admin at 30 June, 2010, 1:58 pm
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Promotion of legal business, support of entrepreneurs facing difficulties due to the crisis, a unique opportunity to legalise unreported income, strengthening analytical capacity of controlling authorities, more effective sanctions, fairer tax policy, wholesome communication and greater transparency – these are groups of key measures which are included in the plan for the reduction of shadow economy and promotion of fair competition developed by the working group established according to the decree of the Prime Minister and chaired by the State Secretary of the Ministry of Finance Mārtiņš Bičevskis.
Basic principle of the measures included in the shadow economy reduction plan is to build more favourable and comfortable legal business, while making the illegal or gray part of the business less favourable and less attractive, informed M. Bičevskis on Thursday, June 10, at the press conference where the plan was presented. For example, it is planned to build a so-called “white list” where according to certain criteria legally-working entrepreneurs would be included and which would facilitate access to public procurements, implementation of EU fund projects and ensure less administrative controls. In customs area the institute of recognised entrepreneurs would be developed providing relief of customs procedures according to the degree of reliability.
Taking into account the impact of the crisis the plan is meant for short-term support to businesses in difficulties offering one-off measures – write-down of fines and late payment penalties if the principal is paid on time. Temporarily the late payment penalty could also be abolished in cases where the tax payment term is extended.
An important proposal is simultaneously enforceable set of measures that would give a simple option to switch from illegal economy to legal – it would be introduction of initial declaration (zero-declaration) and possibility for enterprises to legalise their undeclared savings by paying a certain tax (the so-called tax amnesty).
Having evaluated necessary steps to improve controls, the working group recommends strengthening analytical capacity of controlling authorities – to grant them additional rights, access to additional information, optimise functions, better coordination of enterprises inspection. The plan also offers to make the penalty system more efficient not just increase penalties mathematically (which is also necessary in some cases), but also make the application of penalties dependent on the severity, frequency and regularity of breaches. The aim of the measure is to ensure that in case of one-off error a heavy penalty is not applied, while in cases of systematic breaches and disregard of the law it would be possible to cancel licenses and even stop the economic activity.
The working group recognised as essential creation of more efficient and fairer tax system to promote simple and voluntary payment of taxes. The planned measures include transfer of the tax burden from labour to consumption and property, reduction of relieves and exemptions, changes in payment procedures (such as application of reverse VAT), as well as cancellation of excessive demands (such as reducing of the tax rate on interactive games). In the press conference the State Secretary of the Ministry of Finance M. Bičevskis stressed that these directions coincide with principles included in the medium-term fiscal policy guidelines.
However the working group also is well aware that controlling and repressive measures alone will not produce sufficient effect on the reducing of illegal business; in this process people’s attitude and understanding of the importance of tax payments play a huge role. Therefore, the plan also emphasises the need to improve communication with the public informing about positive and negative examples, as well as informing about the use of taxes paid to the state budget and the link between the quality of public services and amount of taxes paid.
It is planned to promulgate the plan for the reduction of shadow economy and promotion of fair competition on June 17 in the State Secretaries’ meeting.
As it is known, the working group established according to the decree of the Prime Minister to develop the action plan for combating the shadow economy organised its work in two phases – during the first phase, until April 1, the group offered short-term measures to be implemented to restrict the shadow economy and facilitate fair competition. However, the basic task of the working group was to develop conceptual solutions which would be implemented during the second phase and which would be based on an analysis of the causes of the shadow economy and encourage change in public behaviour in long term.
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