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Should Russia's shadow workforce pay taxes to state coffers?

May 27, 2015, 18:55 UTC+3 Alexandrova Lyudmila
© ITAR-TASS/Artyom Geodakyan

MOSCOW, May 27. /TASS/. The Russian authorities are considering reducing the scope of the shadow economy and replenishing state coffers by levying a special tax on persons working unofficially but enjoying state services for free like all other citizens. This initiative, however, has largely evoked a negative response from experts.

"A number of measures are currently under consideration at the federal level, which are aimed at reducing illegal employment," Deputy Head of the Federal Labor and Employment Service (Rostrud) Mikhail Ivankov said on Tuesday.

This measure envisages introducing a levy on people "who have reached the age of 18, except for officially employed people, registered jobless persons, students, pensioners and other privileged categories of citizens."

A similar law recently came into effect in Belarus. Persons who have not worked officially for six months and have not paid taxes over this period have to pay a special tax to the state treasury. The levy equals 20 so-called basic amounts equivalent to about $250 per year.

Meanwhile, the increasingly larger part of the Russian population is moving into the shadow sector, giving rise to new forms of economic activity, social scientists say.

The estimates of the Russian shadow economy differ. In Rostrud’s estimates, the shadow sector of the domestic labor market stands at 15 million people today. Many of the shadow labor force receive their entire wages in envelopes and thus no taxes on these incomes are paid.

In turn, Russian Deputy Prime Minister Olga Golodets said in 2013 "only 48 million people are engaged in the sectors, which are clear and understandable to us," which suggested that official labor involved about 56% of the economically active population while the remaining 38 million people or 44% of the workforce could be working in non-transparent conditions.

According to data of Russia’s State Statistics Service (Rosstat), the domestic economy’s shadow sector may account for 40% of GDP.

A decision on a special tax on Russian citizens working unofficially has not been made so far, Head of the Labor Committee at the State Duma (the lower house of Russia’s parliament) Olga Batalina said, adding various options were being discussed.

However, the lawmaker called as abnormal a situation when millions of Russians were using health care, social and other services for free, without paying anything to the budget. But many other Russian parliamentarians spoke categorically against this tax.

"This proposal made by Rostrud will hardly make people quit the informal labor market," Vice-Rector of the Russian Presidential Academy (RANEPA) Alexander Safonov was quoted by Nezavisimaya Gazeta daily as saying.

"If the population unengaged in labor relations is obliged to pay a social tax, then schemes of legalizing illegal labor will immediately emerge. For example, people would start keeping their work record books at companies while actually carrying out their activities outside these firms. And how will it be possible to check this?" he said.

Rostrud’s initiative is "bad and irrational," Deputy Director of the Center for Labor Studies at the Higher School of Economics Rostislav Kapelyushnikov said in an interview with TASS.

The hopes for bringing the economy out of the shadow using this levy are illusory, he added.

"It is unclear how the authorities plan to separate those who work illegally from those who do not work at all," the expert said.

The imposition of this levy would breach the constitutional right of citizens to dispose of own fate, he added.

"Under the Russian Constitution, labor is a right and not a duty," RANEPA Professor Lyudmila Pronina told TASS.

"But what will then to do with people of creative professions, if they are not registered anywhere?" the expert asked.

According to the expert, the imposition of this levy would not help get away from illegal employment. "Besides, it will be impossible to administer this tax," she added.

Her opinion was shared by Director of the Social Policy Institute at the Higher School of Economics Sergey Smirnov.

‘There will be so much trouble with the administration of this proposal! It will be necessary to boost the staff of Rostrud, the tax service and so on. How can this be done? Can you imagine the proportions of the controlling body? In my view, the game is not worth the candle," the expert said.

TASS may not share the opinions of its contributors