Back in Black – (Ukraine’s shadowy economy that is)

February 1, 2012

Over the years this blog has been running, it has touched upon the size of the “black economy” several times and puzzled over just how large it is.

There have been previous guesstimates from various political figures over the years ranging between 60% and 80%.  A truly outrageous percentage and one suspected somewhat embellished for political reasons, whether to show the scale of the problem and lost tax revenue as an excuse for not delivering necessary infrastructure or to show the ineffectiveness of the government of the day when raising the issue.

Like all such quotes and guesstimates, not only do you have to wonder at how such figures are arrived at, but it is then necessary to get behind those numbers to discover who and what qualifies as being included in the “black economy”.

The latest politician to have produce “figures” about the scale of the black economy is Prime Minister Azarov.  According to him more than 6,000,000 people in Ukraine are actively working in the black economy.

That is an incredible figure if we agree that there are only 20.5 million Ukrainians of working age from a total population of just under 46 million.  To cut to the core of the issue, it means only 14 million Ukrainians are paying any form of tax or pension contribution whilst 32 million Ukrainians do not.

Less than 1 in 3 are contributing to the development of Ukraine via direct taxation.  In fact the situation is worse given the aging population of Ukraine as they will be drawing pensions in excess of the pension pot.  A $2.5 billion shortfall to be exact in 2011.

Granted in the global scheme of things, even in the Ukrainian scheme of things, that is not a massive amount of money.  Indeed the Ukrainian budget deficit is declining which ultimately can only be good news if the economy can survive the massive amount of foreign loans due in H1 of 2012.

However, the issue of 6 million Ukrainians working and employers engaging that many people, both of whom are avoiding direct taxation by way of employee and employers contributions notwithstanding pension contributions is simply unsustainable in the long term regardless of which colour any sitting government may be.

Prima facie, the new Tax Code would theoretically force many of those currently “in the black” to certainly reach the grey if not the white economy.  However when Ukrainian psyche and innovation is taken into account, as well as a massive distrust of government (of any party) when it comes to spending tax revenue on Ukraine rather than pocketing it, the new Tax Code will probably force as many into the black economy as it will force out of the black economy unless it is effectively implemented and enforced.  Effective implementation is an area where Ukraine always fails.

Coming from a nation that has spent an awful lot of money to inform me I owed Sterling 1.18 ($2) from the beginning of the millennium, (now duly paid I will add) and thus spending far, far more money chasing my (unbeknown to me until recently) tax debt from the UK to Russia and then Ukraine over the course of a decade,  it does seem rather incredulous that 6 million Ukrainians cannot be made to pay by Ukraine in Ukraine.

Anybody who can offer up answers, please send it to: Prime Minister Azarov, Ukraine RADA, Kyiv, Ukraine.   Quite obviously those in power are seriously struggling with those in and those going back in black.

All the above said, it really doesn’t help when leading politicians here submit tax returns that are truly unbelievable and the law makers pay their researchers with cash in an envelope (as happened with one researcher I know when working on the new Tax Code by his RADA boss.)



  1. […] Blog All you need to know about Odessa!! « Back in Black – (Ukraine’s shadowy economy that is) Social initiatives – How to reduce orphan numbers in Ukraine (and other things)? […]

  2. […] Now it is quite right and proper for this issue to be raised but the question of financing both the State support and support for prospective foster/adoptive parents will undoubtedly prove to be difficult to provide during a time when revenues are low. (See yesterday’s post) […]

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