The 2022 shadow economy survey commissioned by the Estonian Tax and Customs Board (ETCB) and carried out by Turu-Uuringute AS shows that more than one fifth of the population (23 %) knows someone who receives envelope wages and 5 % receives envelope wages. Compared to the 2021 survey, the respective figures were 24% and 4%.
According to Raigo Uukkivi, Director General of the ETCB, mapping the attitudes of taxpayers is an important input for the work of the Board. “We know that the more difficult it is for people, the more tempting it seems to be to evade tax obligations. This becomes decisive in the economic downturn perspective. However, the results of the survey show that despite difficult times, Estonian people understand the importance of taxes in supporting their country,” he added.
The survey conducted among economic operators by the Estonian Chamber of Commerce and Industry shows that compared to 2021, the proportion of respondents who estimate that envelope wages account for more than 50 % of all payments has decreased the most – the proportion of respondents was 4 % in 2021 and 1 % in 2022. While according to the previous survey 50 % of respondents thought that envelope wages account for up to 5 % of payments, the latest survey shows 55 % of respondents think so.
According to Mait Palts, Director General of the Estonian Chamber of Commerce and Industry, the decrease in the share of envelope wages is a positive step towards a fairer economic environment and competition between companies. “The results of the survey confirm that the consistent effort to fight shadow economy and illegal wages has yielded results,” Palts said.
“However, it is important to work further in order to ensure that in the current difficult economic times the positive trend continues, so we can make sure that the business environment in Estonia remains transparent and fair,” he explained.
Problems in the construction sector continue
According to both the shadow economy survey and the survey conducted by the Estonian Chamber of Commerce and Industry, construction is the most problematic sector, followed by accommodation and catering, and art, entertainment and leisure.
The estimated tax losses of the ETCB in the construction sector have remained more than 20 million euros per year for years. However, since 1 October, it is mandatory to register the subcontracting chain and the time workers spend on construction site in the information system of the ETCB.
“It will certainly take time to adapt to the new system and we wish to advise and support companies in implementing it at first, but in the longer term it will give us better tools for carrying out checks. Our aim is that in the future, only people properly recruited and receiving fair wages will be working on constructions sites, and the main contractor and state have a clear overview of the workers,” said Marc Mälter, Head of Labour Tax Sector of the ETCB.
“It is encouraging that the awareness of employees in construction and real estate companies is also higher – 69 % are aware that they are also responsible for unpaid taxes. However, the ETCB is concerned that according to the survey, more than one in three respondents do not know that it is possible to collect taxes not paid by a company from the persons themselves. The representatives of the ETCB do a lot of work to raise awareness, especially among young people, but the survey results are definitely a sign that we need to prioritise preventive measures in addition to inspections,” Mälter added.
“From the point of view of economic operators, illegal economic activity, especially in the construction sector, remains a concern, but on the positive side, it is good to see that according to last year’s survey, the share of illegal economic activity in the construction sector has slightly decreased (89 % and 82 % respectively),” Palts said and stressed that economic operators have an important role to play in the fight against shadow economy, by following the principles of fair business and demanding it from others.
However, it is equally important to always consult with economic operators on how the government and tax authority can further support fair business and what would be more sensible solutions to ensure a fairer tax environment. These solutions should always be found together.
Income earned through platforms is mostly declared
According to the survey, 3 % of Estonian residents earned income through various platforms (e.g Bolt, Wolt, Fudy, AirBnb) in 2022. Two thirds of them received income of 1200 euros per year, and in the case of nearly two thirds (64 %), platform operators declared income tax on the income received. Of those respondents who did not have a pre-filled declaration, more than half filled it themselves. The increase in the declaration of income earned through platforms is also supported by a surge in the use of the Entrepreneur Account. While there were 2719 active accounts in 2021, it increased to nearly 7000 last year.
“People’s tax discipline was certainly facilitated by the focused activities of the ETCB in this area last year and the knowledge that from this year, platforms are obliged to share data with the ETCB as well,” Mälter explained.
The estimated tax loss due to the payment of envelope wages in 2023 is 99,8 million euros, of which 83,6 million euros comes from paying wages partly as envelope wages and 16,2 million euros from paying wages fully as envelope wages. The results of the 2022 shadow economy survey can be found on the ETCB’s website “Pressimaterjalid”.
