Nearly 40 Percent of Russian Economy Still in Shadow Sector

Cash, Calculator, Pen

(Paul Goble – Window on Eurasia – Staunton, July 2, 2017)

According to the international Association of Chartered Certified Accountants, 39.3 percent of the Russian economy remains in the shadow sector, making Russia one of the leaders in this regard and meaning that 35.55 trillion rubles (600 billion US dollars) of economic activity there are off the books and not paying taxes.

Not only is the share of the shadow economy in Russia almost twice (1.84 times) that of the worldwide average, but it has remained almost unchanged there since 2011 while it has declined over that period in other countries from 23.1 percent to 22.5 percent (svpressa.ru/economy/article/175987/ and rusjev.net/2017/07/02/rossiya-obognala-afriku-po-razmahu-tenevoy-ekonomiki/).

Russia has surpassed the level in Kenya (where it is 26.8 percent) but not yet reached the level of Nigeria (47.7 percent), the ACCA says. And it lags far behind the three countries that have the smallest shadow sectors, the United States (7.69 percent), Japan (9.89 percent), and China (10.17 percent).

Shadow economies flourish where taxes are high and thus there is a great deal of tax avoidance, where government pressure on business is intense and where the level of poverty is high as well. In Russia, the ACCA says, all these things are true as are underlying weaknesses in democratic institutions and the current recession.

According to one poll, two-thirds of Russians either support or at least do not oppose the shadow economy because they back the desire of businesses to avoid paying taxes or registering with the state. Indeed, this public support for the shadow economy is currently at the highest levels in modern times.

Moreover, ever fewer Russians express opposition to the shadow economy: in 2001, 42.2 percent did; now only 16.4 percent do.

A major reason for this, the ACCA says, is that Russians don’t view business as the cause of the process in which “the poor are becoming poorer and the rich richer” because in Russia, in the view of the public, “the richest people are not entrepreneurs but bureaucrats” and so they can support the efforts of the former to escape from the power of the latter.

[Article also appeared at windowoneurasia2.blogspot.com/2017/07/nearly-40-percent-of-russian-economy.html]