Declaration of informality: Macedonian Hidden Economy Dynamics among Policies and Politics

Transcription

1 Declaration of informality: Macedonian Hidden Economy Dynamics among Policies and Politics Emil Shurkov Junior Policy Analyst at the Center for Research and Policy-Making (CRPM) on an EIDHR project : Promoting Good Governance and Economic Rights through empowering Macedonian Civil Society to Monitor and Tackle the Hidden Economy in Republic of Macedonia The project is financed by the European Instrument for Democracy and Human Rights (EIDHR)

2 Main reasons for the appearance of undeclared labor Increase in tax and social security contribution burdens, tax morality Source: Schneider (2012) cited in Eurofound (2013), Tackling undeclared work in Croatia and four EU candidate countries, Eurofound, Dublin

3 Hidden Economy Some factors and findings Unemployment rate 27.6% (2014), Youth unemployment 54,6% (2014), Long-term unemployment 82,1% (2012) Hidden economy rate ranges from 24% to 47% of GDP, depending on the method used. NOE by the state statistical office estimates it at around 2. 1/3 of employees with primary employment besides their regular wage they also receive envelope wages or additional wage through temporary service contracts. Around 4 of employees with primary employment are partially or completely undeclared. More than 1/2 from employers confirm that contracts with hidden clauses happen in their sector

4 Survey Data population part 1 Perceptions Population survey Business survey Sample Date 10/ /2014 Representative Regional and demographic Regional Sector Sizes What is the wage amount on which your social security contributions are being paid by your employer (Q.7A). Source: CRPM population survey 2014 (population) Level of agreement with the statement I would rather be an undeclared worker with a higher wage, than a declared one with a lower wage (population). on the minimum wage, which is the real one 12.7% agree 21.6% on the amount written in the contract, which is the real wage 44.1% neighter agree nor disagree 14.2% on the amount written in the contract though real wage is higher 6.4% don't agree 58.6% on the minimum wage, though real wage is higher 27.3% doesn't know 5.6%

5 Survey Data population part 2 Income and perceptions Level of agreement with the statement изјавата I rather be an undeclared worker with a higher wage than a registered worker with a smaller wage in relation to monthly household income. Undeclared workers (Left Axis) VS. Complaint initiated inspections as % of total inspections performed (Right Axis). Source: SLI Annual Reports and physical archives % % 24.1% mkd mkd mkd 61.8% 63.4% 20.3% 18.8% Over mkd 20,000 15,000 10,000 5, % 8.8% 6.3% Number of detected undeclared workers 12% 1 8% 6% 4% 2% monthly famliy income % of the total inspections initiated after a complaint I don't agree I agree Drastic change is evident in the crossover of the minimum wage (9.500 mkd / 160 eur) On the other hand according to the State Labor Inspectorate (SLI) there is a decrease in detected undeclared workers from in 2008 to 1033 in 2013.

6 Social Security Contributions Rates of social security contributions in the period ( ). Source: KPMG (2012), the Public Revenue Office (PRO) (2014) and Trpeski, Tashevska (2012) Pension and disability contributions / * 21,2 21,2 21,2 19% 18% 17,6% 17,5 Health Insurance contributions 9,2 9,2 9,2 7,5% 7,3% 7,3% 7,3% Unemployment Insurance Contributions 1,6 1,6 1,6 1,4% 1,2% 1,2% 1,1% Additional Health Insurance contributions in case of accidents 0,5% 0,5% 0,5% 0,5% at work and work related injuries Total 32% 32% 32% 28,4% 27, 26,6% 26,4% Revenue from social security contributions for the period ( ) in Billion of MKD. Source: Public Revenue Office Pension and disability contributions Employment contributions Healthcare contributions

7 Public Revenue Office (PRO) Report of irregularities on the hot-line (198) and the PROs e-reports. Source: The PRO Tax evasion Issuance of cash register receipts Social insurance contributions Other Activities of the General tax inspectorate ( ). Total audits Audits with irregularities Ratio of audits with irregularities /total audits ,771 3,522 45% ,292 3,698 51% ,806 3,171 47% ,194 2,849 4

8 Tax compliance part 1 Do you agree with the following statement I do not pay taxes since they are too high? (D27_B) 10 91,7 % 84 % 78,3 % 8 56,6 % ,5 % 2 9,6 % 13,2 % 7,4 % 16,9 % 12,1 % 2,9 % 0,9 % < MKD > MKD MKD > MKD Yes No NA What percentage of the population agrees with the following individual statements? I don't pay taxes because I don't have such possibility I don't pay taxes because they are very high I don't pay taxes when I can avoid them 5% 1,3% 6,9% 23% 21,1% 25,6 % Monthly household income according to ethnic background Macedonian Albanian Other Albanians Macedonians <10,000 10,001-20,000 mkd 20,001-50,000 mkd > 50,000 mkd

9 Tax compliance part 2 Education, ethnicity, written contracts Percentage of population with written contract for primary job according to educational attainment % (Q.3 vs. Q.D3) (population) % Primary Education 81.5% Secondary Education 93.5% Tertiary Education Share of the population with written contracts according to educational attainment & ethnic background (population) % 86% 75% 9 64% 26% 10 75% 57% Macedonian Albanian Other Primary education Secondary education Tertiary education Significant difference in the rate of acquiring a written contract due to the crossover from primary to secondary education That difference is even more significant if you take the ethnic background in context. 75% of Macedonians with primary education have a written contract compared with 26% of Albanians and 57% of other ethnic communities.

10 Tax compliance part 3 Level of education according to ethnic background (Q.D3 vs. D5) % 33.4% 54.7% 44.8% 34.4% 21.8% Primary Education Secondary Education Tertiary Education Macedonian Albanian Level of trust in the Government of Macedonia according to ethnic background (Q3 v. Q5.1) Source: CRPM field survey 2014 performed for purposes unrelated to this project % 58.7% 71.9% 19.1% 53.2% 35.3% % Macedonian Albanian Other All Distrust/Mostly distrust Mostly trust/ High trust No opinion

11 Survey data businesses part 1 Most important factors for the existence of hidden economy (Q. C14) (business) Measures for reducing hidden economy (Q. C15) (business) impulse of businessman towards getting rich fast 45% more effective stimulation for businesses 58.6 corruption 40.6 reducing taxes 47% high tax burden 39% reducing/tackling corruption % 4 45% According to the data, за 42% of businesses confirm that the present tax system does not represent a problem for development of business or it is an insignificant problem (23%).

12 Survey Data mash up Employees who have received part or the whole wage as an envelope wage in the past 12 months in 2013 for EU-27 and within the last 1 month in 2014 for Macedonia. Source: CRPM/CSD Survey 2014 and Eurofound 2013 survey 12% 11% 1 9% 8% 7% 6% 5% 4% 3% 2% 1% LV 9.7% MK HR EL RO SK 6. BG HU LT CZ EE ES PL BE SI 3. Macedonia is last after Latvia with largest share in envelope wages or 9.7% of the employed. In Bulgaria 6% of the employed receive envelope wages whereas EU- 27 average is 3% of the employed. Methodological differences between the 2 surveys (12 months vs. 1 month) EU27 LU NL PT AT CY DK IE IT UK DE FI FR SE MT

13 Survey Data - businesses part 2 Perceptions How would you assess the amount of different taxes in Macedonia (in %)? (Q. C17) (business) % 55.2% 0 Company tax VAT Profit tax Personal income tax Social insurance higher than they should be as they should be lower than they should be NA Health insurance ½ of interviewed business representatives confirm that the present tax rates are appropriate, Less than ½ confirm that tax rates are higher than they should be A very small share confirm that tax rates are smaller than they should be.

14 Survey Data - businesses part 3 Corrupt practices How frequently companies tend to report lower turnover than the real one (Q. C12_G) (business) How frequently companies tend to report smaller income than the real one? (Q. C12_C) (business) 35% % % % 25% 2 15% 1 5% % 1 5%

15 Conclusions Positive trend of the revenues coming from social security contributions and other taxes gathered by the Public Revenue Office (PRO) despite the decrease in tax rates Tax evasion and non-issuance of fiscal bills are the leading reasons for detected irregularities in the period of (PRO) 1/2 of the interviewed businesses agree that the tax system is good and stimulative for business development. 1/3 of businesses state that within their sector there is 1 or less which work without a written contract Only 44% of the employees with primary education have a written contract compared to 81% of the employed with secondary education. The difference is more drastic if ethnic background is taken into account. Less than ½ (46.7%) of the citizens reported that they always receive fiscal bills when shopping for goods and groceries. 1/3 of businesses report that manipulating with the VAT and using accounting tricks with the purpose of paying lower taxes are happening in their respective sectors.

16 Recommendations Simplifying and reducing transaction costs associated with remittances to reduce their hiding. Strong political engagement in support of diaspora projects be it start-ups, business support centres or pure philanthropy. Improve the success rate of programs dedicated for employment of members of vulnerable groups (Roma unemployed and social assistance receivers) through cooperation with external social partners and NGOs. Strong political engagement in fighting income inequality on a state and regional level. Expedite VAT returns in-line with increased institutional interoperability and data sharing. Abolish the municipal corporate tax (firmarina), which although not substantial generates a lot of confusion and frustration. Creation of a Hidden Economy Task Force that will also include the Civil Society Organizations in a more evidence based policy-making.

17 Thank you for your attention! The project is financed by the European Instrument for Democracy and Human Rights (EIDHR)

18 To view additional publications on the topic follow the links for: 1. Best Practices Reader In Monitoring The Hidden Economy in Albanian and Macedonian only Policy Brief Nr. 30: The Economics Of Blurs And Shadows The Hidden Economy In Macedonia 3. Policy Brief Nr. 31: Hit And Miss The Dynamics Of Undeclared Labor In Macedonia 4. Policy Brief Nr. 33: Hunting The Shadows Tax Evasion Dynamics In Macedonia 5. Background Analysis On The Spread And Trends Of The Hidden Economy In Macedonia 6. Monitoring The Hidden Economy in Macedonia: Trends and Policy Options (Incoming on The project is financed by the European Instrument for Democracy and Human Rights (EIDHR)