Latvia presents itself as Baltic's largest black economy: Swedish study


Thursday, 23 June 2011
Latvian economy is trying to grow but it is pulled back by the past shadowy post communist corrupt business thinking that looks to constrict its economy for the time being. This time the economy has been ranked as the economy in the Baltic with the largest dark economic sector.

This is the verdict from a study carried out by the Stockholm School of Economics in Riga.
According to it, the black economic sector in the country is almost 40 percent of all the country’s economic activities. And it is not the effects of the crisis that led to it but a way entrepreneurs' attitude is fashioned,  according to Arnis Sauk, one of those who worked on the study. Among other things, he could see that companies are using tax avoidance strategy.

“Instead of looking for new and improved products, and instead of thinking about how to get better at doing business, companies use various techniques to evade taxes as a way to reduce costs and gain competitive advantage,” says Arnis Sauk to radio Sweden.

He is surprised about the substantial differences between Latvia and its neighbours. In Lithuania and Estonia, their black sector is around 19 percent but in Latvia it is almost double, about 38 percent.


Distrust that taxes are used properly is also a cause of tax evasion and undeclared work. Something that is reinforced by that many companies are found paying bribes to secure contracts even in cases where the jobs are for government agencies.

But nothing in the survey show that conditions of employment would be lower in Latvia than in neighbouring countries. It's about the Latvian entrepreneurs' attitude.

“It is not certain that there (employees working condition) really worse here, however, it is perceived that the situation could be worse in the ways in which taxes are for example. But entrepreneurs in Estonia and Lithuania believe that, it's OK,” says Arnis Sauk.

In the neighbouring countries, it is most common to see illegal work in small businesses, but in Latvia, the survey shows that in large firms - those with more than 200 employees, which are worst tax evaders.

“Large companies do not pay taxes because they think that they should not go pay taxes. Either they can avoid the inspectors or bribe their way out.”

Latvia, which has begun to recover gradually after the financial crisis, would have had a much better growth if the black economy was recued in a substantial manner. But despite the efforts of the Ministry of Finance, the black economy is instead growing. But the authorities also do carry out various changes in the system out to no avail.

“They give with one hand and takes with the other, and I'm afraid they'll take more than they give, which is one reason that the black sector is actually growing,” says Arnis Sauk.
By Team

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