Actuality October, 25, 2007

Shadow (black) business is an activity that takes place secretly, especially in order to avoid tax.

In 2006 the middle Russian enterprise realized 16,8% of the products in the “shadow” market sector, and 38% from its turnover wasn’t taken into account at taxation. On the whole over the period from 2002 to 2006 shadow activity of small and mid-sized business companies decreased significantly — from 50 to 34,5%. Thus the output of “black” realized production considerably decreased, than output of illegal “cash”. Such are the research results of the National Institute of Enterprise Problems System Researches.

In 2002–2006 large companies “whitewashed” their business more active. The dynamics for enterprises with a turnover more than 50 million rubles ($2 million) is the following: “black” turnover is 30,1% in 2006 against 52,6% in 2002. And small-sized companies, apparently, feel quite comfortable in the shadow: as compared to 2002 they did not almost reduce the stake of illegal turnover (41,7% against 43,3%).

Where do enterprises spend unaccounted by tax services means? According to data of NIEPSR, 20% is pay packets, about 20% is a “sponsorship” to officials (bribes), under 15% are payments to suppliers, about 15% is a profit, 35% — other. The researchers noticed a curious tendency: the deeper an enterprise sticks in the “shadow”, the slower it turns to the legal terms of work. And vice versa, if the stake of illegal turnover of company is slender, it is dynamically “whitewashed”. For example, among enterprises with the stake of shadow turnover not exceeding 21%, about 60% are ready “to begin the world anew”, if the state reduces tax rates, and there are only 28% among those, which “black” means make 45–75% up. And those enterprises, with 80% of shadow turnover in 2002, activate their illegal activity at all.

Meantime, most companies have quite good chances “to turn over a new leaf” mainly during the first six years of operation at the market. Later this pious  process mainly stops. It is indicative, that even those enterprises which pay the single imputed income and which taxation in principle does not depend on the output of legal turnover don’t almost fall behind in “black” activity from the average Russian company.

Another observation of NIEPSR researchers: the higher the stake of the turnover hidden from taxation, the higher enterprise profitability and the more intensive salary growth. But it concerns managers only, and work payment of ordinary employees does not depend on the output of shadow turnover. The authors of report suppose that reluctance of business to expose profits and expenses to the light of the day is in a great deal predetermined by high tax rates and corruption of officials. Accordingly, the most effective method to spur the process of companies’ “whitewashing” would be taxation reduction. It would allow enterprises to increase the output of produced products and profits as well. Thus, their stimulus to hide the “book-keeping” from the state would disappear.

In speakers’ opinion, Russian business is already “morally ready” to the complete refusal of scheme of taxation escaping, but it needs a “push” from the side of the state. Two thirds of businessmen, on information of NISREP, agree to make the company activity fully transparent on condition that their partners will act so. And, finally, the overwhelming majority of businessmen (90%) is sure that the absence of profits hidden from taxation is the best way to rise business reputation.