The Benefits of the Black Economy

Some call it the 'unofficial' or 'in-formal' economy, others call it the 'grey economy' nevertheless the old name fits it best: the 'black economy.' In the USA 'black' means 'profitable, healthy' and this is what the black economy is. Macedonia must depend its blessings for having had a black economy therefore strong and thriving to see it through the transition. If Macedonia had to rely only on its standard economy it'd have gone broke long ago.

The black economy is made up of two constituent activities:

1.. Legal actions that aren't reported to the tax authorities and the revenue from which goes unreported and untaxed. For instance: it is maybe not illegal to completely clean someone's house, to give people or even to drive them. It is, however, illegal to hide the income generated by these actions and to not pay tax on it. In most countries of the entire world, this is a criminal offence, punishable by years in prison.

2.. Illegal activities which, needless to say, are also not reported to the state (and, therefore, not taxed).

Both of these types of activities together are believed to comprise between 15% (USA, Germany) to 60% (Russia) of the economic activity (as measured by the GDP), depending on the nation. It would probably be an under-estimate to state that 40% of the GDP in Macedonia is 'black.' This means 1.2 million 2500 per annum. The money created by these activities is basically used in forex beyond your banking system or smuggled abroad (also through the area banking system). Experience in other countries suggests that circa 15% of-the money 'drifts' within the recipient country and can be used to finance consumption. This would change to 1 billion free floating dollars in the hands of the two million people of Macedonia. Billions are used in the external world (largely to finance additional transactions, some of it to be preserved in foreign banks from the long hand of the state). A trickle of money comes back and is 'washed' through the opening of small legal organizations.

These are excellent media for Macedonia. This means that after the macro-economic, geo-political and (specially) the micro-economic environments will change - billions of 75000 will move back to Macedonia. People brings their money back to open companies, to support household members and just to eat it. Everything depends on the mood and on the environment and on just how much these people believe that they can depend on the political stability and rational management. Such enormous flows of capital happened before: in Argentina after the Generals and their corrupt regimen were ousted by civilians, in Mexico following signature of NAFTA and in Israel once the peace process began, to say but three cases. These supplies may be attracted back and transform the economy.

But the black economy has additional important characteristics.

The black economy is just a cash economy. It's liquid and fast. It escalates the velocity of money. It inserts essential forex for the economy and inadvertently escalates the effective money supply and the resulting money aggregates. In this sense, it defies the demands of 'we know better' organizations including the IMF. It encourages economic activity and uses people. It promotes labour mobility and international trade. Black economy, in short, is extremely positive. With the exception of illegal actions, it does exactly what the state economy does - and, frequently, more efficiently.

So, what's morally wrong with the black economy? The solution, in brief: it's exploitative. The rest of the economy, which are not hidden (though could have liked to be), are penalized due to their exposure. Get further on an affiliated paper by going to partner sites. They pay taxes. Employees in a factory owned by the state or within the government service can not avoid paying taxes. The amount of money the state collects from them is invested, for instance, in infrastructure (roads, devices, electricity) or used to cover for public services (education, support, policing). The employees of the black economy appreciate these services without investing in them, without bearing the costs and worse: while others bear the costs. These encourages them, theoretically to make use of these resources less effortlessly.

And all of this might be true in an extremely effective, very nearly perfect market economy. The focus is o-n the term 'market.' Regrettably, all of us live in societies which are managed by bureaucracies which are controlled (the theory is that, seldom used) by politicians. These elites are likely to abuse sources and to misuse and to allocate them within an inefficient method. Also financial theory admits that any dollar left in the hands of the private-sector is significantly more proficiently used compared to the sam-e dollar in the hands of the very honest and well meaning and well planning civil servant. Governments throughout the world distort misallocate scarce economic resources and economic choices.

Hence, when the objectives are to encourage economic development and employment - the black economy must be accepted. That is just what it does and, by definition, it does so more efficiently than the government. The less tax dollars a government has - the less damage it can. That is an opinion stocks by many economists in-the world today. Lower tax rates are an admission with this fact and a legalization of areas of the black economy.

The black economy is very important in times of economic struggles. Countries in transition are a private case of emerging economies which are a private case of devel-oping countries which was once named (in less politically correct times) 'Third World Countries.' They suffer with all types of severe financial diseases. They lost their export markets, they are technologically backward, their unemployment sky-rockets, their plant and machinery are dilapidated, their structure decrepit and dysfunctional, they are lethally illiquid, they become immoral communities (responsibilities perhaps not honored, crime flourishes), their trade deficits and budget deficits balloon and they're conditioned to be determined by handouts and dictates from various international finance institutions and donor countries.

Read this number again: is not the black economy an ideal s-olution before the dust settles?

It increases exports (and competitiveness through imports), it promotes technology moves, it employs people, it spends in legitimate organizations (or is practised by them), it adds to the success of the world (black marketeers are big spenders, great people and create real estate), it inserts liquidity to an otherwise dry market. Mercifully, the black economy is out of the reach of zealous missionaries such as the IMF. It goes its way, unnoticed, unreported, unknowingly, untamed. It does not look closely at money supply targets (it is much bigger than the official money supply figure), or to macroeconomic stability objectives. I-t plods on: patronizing and helping the country to endure the scourges of Western and transition piousness and doing business. Provided that it is there, Macedonia includes a real back-up. The government is advised to turn a blind eye to it for it is a blessing in disguise.

There's one certain medicine: eliminate the population and both un-employment and inflation is going to be removed. Minus the black economy, the people of Macedonia would not have survived. This training must be remembered as the government makes to crack down on the only industry of the economy which can be still alive and kicking.

Functional Guidelines

The execution of these tips and reforms should be required to become GRADUAL. The informal economy is an important pres-sure valve for the release of social demands, it ameliorates the social costs inherent to the time of transition and it constitutes an important part of the private-sector.

As we said in the torso of our record, these are the good reasons for the existence of a casual economy and they should be required to all be tackled:

a.. High tax level (in Macedonia, high payroll taxes );

b.. Tedious labour market regulations;

c.. Red tape and bureaucracy (which regularly leads to problem );

d.. Difficulty and unpredictability of the tax system.

Reporting Requirements and Transparency

a.. All banks ought to be required to report forex transactions greater than 10,000 DM (whether in one transaction or cumulatively by-the sam-e legal entity). The daily report should be presented to the Central Bank. In severe cases, the orders ought to be examined.

a.. All the ZPP account amounts of all the firms in Macedonia should be widely available through the Internet and in published form.

a.. Companies should be required by law to make a list of all their bank accounts accessible to the courts, to the ZPP and to plaintiffs in lawsuits.

a.. All citizens must be obliged to file annual, personal tax returns (common tax returns, like in america). In this way, differences between individual tax returns and other information can result in investigations and discoveries of tax evasion and criminal activities.

a.. All people must be obliged to file bi-annual declarations of assets and personal wealth (including real estate, vehicles, movables, inventory of-business owned or controlled by the patient, financial assets, income from all sources, shares in firms, etc.).

a.. All shops and areas of business should be necessary to install - over a period of time of 3 years - cash registers with 'financial heads.' These are cash registers using an embedded chip. Be taught supplementary resources on our favorite partner website by visiting comprar vinilos. The chips are made to save a walk (step-by-step list) of all the transactions in the bar or nightclub. Tax inspectors could download its contents for the tax computers, select the chip randomly and utilize it to issue tax assessments. The information thus collected may also be entered with and in comparison to information from other resources (see: 'Databases and Information Gathering ~'~~). This can be done only following the complete implementation of the guidelines in the section called 'Databases and Information Gathering.' I really do not consider it as an effective measure. While it improves business costs - it's unlikely to avoid money or else unreported dealings.

a.. All taxis must be designed with taximeters, which include a printer. This would be-a condition.

a.. Commercial norms (for instance, the total amount of sugar needed to produce a weight uni-t of chocolate, or liquid) should really be revamped. Norms should NOT be determined according to statements offered by the manufacturer - but by a panel of experts. Each majority must be signed by three people, which at least one can be an expert engineer or another expert in-the appropriate area. Thought should be focused on the chance of employing independent laboratories to manage them and determine norms.

a.. Payments in wholesale markets ought to be done via a ZPP table or branch within the wholesale market itself. Release of the goods and leaving the physical location of the wholesale market ought to be allowed only against presentation of a ZPP payment slip.

Reduction of Cash Transactions

a.. Cash purchases are the lifeblood of the in-formal economy. Their reduction and minimization is completely crucial in the attempt to include it. One way to do it's by issuing ZPP fee (debit) cards to agency, businesses and experts. Utilization of the cost cards must be necessary using business-to-business transactions.

a.. All trade practices should be required to report to the Central Bank all orders above 1,000 DM and to issue receipt for each money transaction above 100 DM. Dubious transactions (as an example, transactions which exceed the economic means of the client concerned) should really be appropriately examined.

a.. If the salary is not paid in money (for example, with a shift to the bank account of the employee) the government could reduce payroll taxes. The distinction between payroll taxes collected on cash salaries and lower payroll taxes collected on noncash salaries - must be recovered by imposing a levy on all cash withdrawals from banks. The banks could withhold the tax and transfer it to the state monthly.

a.. Currently, checks given to account-holders by banks are practically guaranteed in full by the issuing banks. This changes checks into a sort of cash and checks are used as cash in the economy. To stop this situation, it is suggested that most assessments will soon be payable to the beneficiary only. The account-holder is going to be required to supply the financial institution with a regular list of checks she or he released and their details (to whom, day, etc.). Checks should be valid for 5 trading days only.

a.. An obligation can be added to collaborate organizations to effect payments only through their accounts (from account to account) or using their bank cards. Income distributions must be subject to a withholding tax deducted by the bank. The exact same withholding tax should be placed on credits given against cash balances or even to savings homes (stedilnicas). As an alternative, stedilnicas also needs to be required to acquire, take and move the money withdrawal withholding tax.

a.. In the severe and if all other measures fail following a reasonable time frame, all foreign trade related obligations ought to be performed through the Central Bank. But this is really a extremely abnormal, emergency measure, that we do not recommend at this stage.

a.. The interest paid on money balances and savings accounts in the banks should be increased (starting with bank reserves and deposits in the central bank).

a.. The issuance of check-book should be made easy and convenient. Every department should issue checkbooks. All the banks and the postoffice should respect and accept each other's checks.

a.. A Real-time Gross Settlement System must be established to reduce drift and aid interbank transactions.

Government Tenders

a.. Organizations competing for government tenders should be obliged to get a certificate from the tax authorities they owe no back-taxes. Otherwise, they should be barred from bidding in government tenders and RFPs (Requests for Proposals).

Databases and Information Gathering

a.. Calculating the in-formal economy should be considered a priority target of the Bureau of Statistics, which should devote considerable resources to this effort. In this, the Bureau of Statistics should co-ordinate closely with a wide variety of committees and related ministries that oversee different sectors of the economy.

a.. Hit this link site to discover the inner workings of this activity. All registrars must be computerized: share ownership, property, motor vehicles, land, organizations registration, tax filings, import and export related documentation (methods), VAT, permits and licences, documents of flights abroad, ownership of cell phones and etc. The tax authorities and the Public Revenue Office (PRO) should have unrestricted access to ALL the registers of all the registrars. Hence, they must be able to find tax evasion easily (request sources of wealth- how did you build this house and buy a new car if you are getting 500 DM regular based on your tax return?).

a.. The PRO must have full access to the computers of the ZPP and to all its advanced and non-computerized records.

a.. The computer system should constantly assess VAT records and records and statements linked to other taxes in order to find differences between them.

a.. Gradually, articles of money terms, tax returns and financial statements must be done and advanced even on a monthly basis (for example, VAT statements).

a.. A method of informants and informant advantages should be established, including private telephone calls. Up to a huge number of the intake or seizure value related to the information supplied by the informant should go for the informant.


a.. Customs officers and tax inspectors should receive police forces and greater wages (including a percentage of tax revenues). The wages of all tax personnel - no matter their original place of employment - should be equalized (of course, taking into account period, education, rank, etc.).

a.. Judges should be trained and educated in things regarding the in-formal economy. Specific courts for taxes, for example, are recommended (see suggestion below). Judges have to be competed in tax laws and the state tax authorities should provide BINDING ideas to entrepreneurs, businessmen and investors concerning the tax implications of their actions and choices.

a.. It's proposed to assign tax inspectors for the public prosecutors' office to work as teams on complex or major cases.

a.. To determine a completely independent Financial and Tax Police with representatives from all relevant ministries but under the exclusive jurisdiction of the PRO. The remit of the Police will include all matters economic (including real estate transactions and forex transactions, property, payroll problems, etc.).

a.. Hiring and firing methods in every the offices of the tax administration must be simplified. The number of administrative posts should be lowered and the number of field agencies and tax inspectors increased.

a.. Tax debts and especially the interest accruing thereof should be the first goal of the ZPP, before all other payments.

a.. All producers and suppliers of food products (including soft drinks, sweetmeats and candy, meat products, snacks) must obtain a license from their state and be afflicted by rigorous and periodic inspections.

a.. All contracts between companies ought to be documented in the courts and stamped to become valid. Deals therefore confirmed must be followed by the registration papers (registrar extract) of the contracting parties. Several 'firms' doing business in Macedonia aren't even officially registered.

Reforms and Amnesty

a.. A special inter-ministerial committee with MINISTER-MEMBERS and headed by the PM must be recognized. Their roles: to recommend suitable new legislation, to reduce bureaucracy and to investigate corruption.

a.. Bureaucracy should be pared down substantially. Permits, the more permits, tolls, charges and files needed - the more crime. Less power to state officials suggests less corruption. The One Stop Shop concept ought to be implemented everywhere.

a.. A broad amnesty must be declared. People declaring their illegal wealth ought to be pardoned LEGALLY and either perhaps not taxed or taxed at a low-rate once and forever to the previously undeclared wealth.

The Tax Code

a.. To impose a VAT system. VAT is one the top devices contrary to the in-formal economy because it tracks the production process on top of a sequence of value added suppliers and producers.

a.. The Tax signal must be refined. Emphasis should be added to VAT, use taxes, customs and excise taxes, charges and duties. The government should directly compensate the poor for the excess relative burden, to revive progressivity.

a.. After revising the tax code in-a important way, the government should declare a moratorium on any more changes for at least four years.

a.. The self-employed and people whose primary job is directorship in companies ought to be given the option between paying a fixed-speed of the market value of the assets (including financial assets) or tax.

a.. All property rental contracts ought to be registered with the courts. Lack of registration in the courts and cost of the stamp tax must give the agreement invalid. The courts must be permitted to research and stamp an agreement only after it carries the stamp of the General Public Revenue Office (PRO). The PRO should issue an immediate tax assessment and register the contract. Contracts, that are for under 75% of-the market prices, ought to be subject to tax assessment at market prices. Market prices must be identified as the moving average of the last 10-0 rental contracts from the same place documented by the PRO.

a.. Filing of tax returns - including for the self-employed - must be only with the PRO and not with another human anatomy (like the ZPP).

Legal Issues

a.. The responsibility of proof in tax court cases should shift from the tax authorities to-the person or agency examined.

a.. Special tax courts ought to be established with-in the present courts. They should be staffed by especially trained judges. Their decisions ought to be appealed to the Supreme Court. Their decisions should be rendered by them within 180 days. Other juridical and appeal occasions must be postponed - aside from an appeal case inside the PRO. Thus, the method of tax collection must be considerably simplified. A tax assessment must be granted by the tax authorities, appealed internally (within-the PRO), take-n to some tax court session (by a plaintiff) and, finally, appealed to the Supreme Court (in very rare cases).

a.. The law must allow for greater charges, prison conditions and for the faster and longer closure of overdue companies.

a.. Seizure and sale procedures ought to be given in every the tax laws and not only through mention of the Income Tax Law. Administration conditions ought to be incorporated in every the tax laws.

a.. According to the recommendations of the IRS professionals (1997-9) to amend the Law on Personal Income Tax, the Law on Tax Administration and the Law on Profits Tax.

Customs and Duties

a.. Ultimately, the customs service must be placed under foreign contract administrators. If that is politically too sensitive and painful, the customs personnel ought to be eligible to receive a proportion of customs and duties earnings, on the departmental incentive basis. Regardless, the methods should be subjected to outside inspection by expert inspectors who should be rewarded with a portion of the problem and lost profits they present.

a.. In the case of imports or funds abroad, debts, such as a price of more than five hundred above the list price of an item, should be rejected and analysis for the functions of paying customs duties and other fees should be granted at the list price.

a.. In the case of exports or funds from abroad, accounts including a discount in excess of 2500-3000 on the list price of a product should be rejected and analysis for the purposes of paying customs duties and other taxes should be released at the list price.

a.. The variety of tax inspectors should be significantly improved and their pay significantly enhanced. A departmental incentive program must be instituted involving a share of the consumption (monetary fees accessed, items confiscated, etc.).

a.. The computerized database program (see 'Databases and Information Gathering ~'~~) should be used to compare imports of garbage for the purposes of re-export and actual exports (using debts and customs declarations). Extreme and immediate penal steps should be taken, where you'll find disparities and discrepancies. Methods and anti-dumping rates, fines and criminal charges ought to be adopted against exporters colluding with importers in hiding imported products or reducing their importance.

a.. Often final goods are declared and imported to the customs as garbage (to minmise customs duties paid). Later these garbage are often bought outright within the domestic or global markets or bartered for finished products (for example: paints and lacquers against furniture or sugar against chocolate). This would be a important focus of the combat the informal economy. I follow with an analysis of two services and products, which are often abused this way.

a.. I study two examples (white sugar and cooking oil) though virtually all garbage and foods are subject to the aforementioned abuse.

a.. White Sugar is usually imported as brown sugar. One way to prevent that is to place sugar on-the list of LB (significance licence required) list, to reduce the effective time of each licence issued, to link each transaction of imported brown sugar to a transaction of export, to implement the planet value of sugar to customs duties, to demand payment of customs duties in the first customs final, to demand a forwarder's as well as an importer's promise and to require a certificate of origin. Exactly the same goes for Cooking Oil as several other things) (which - when it's imported packaged - is often announced.

a.. All payments for the methods must be made only through the ZPP. Customs and tax inspectors must examine these receipts occasionally.

a.. All items should be kept in the customs terminal until complete payment of the customs duties, as evidenced with a ZPP bill, is effected.

Public Plan

a.. The government must attempt an enormous Public Relations and Information plan. The people should be made to know what's a budget, how the taxes are collected, how they are used. They need to begin to watch tax evaders as thieves. 'He who not pay his taxes - is stealing from you and from your kids', 'Why must YOU pay for HIM'? 'If most of us did not pay taxes- there would be no roads, bridges, schools, or hospitals' (using video to show disappearing roads, bridges, enduring patients and students without classes), 'Our country is a alliance - and the tax-evader is taking from the till (kasa)' and so on.

a.. The expression 'Gray Economy' should be replaced by the more accurate phrases 'Black Economy' or 'Criminal Economy.'.