The shadow economy in Macedonia is a pest not only for the state budget, but also for those companies that work legally, because it encourages unfair competition, claim the tax experts interviewed by "Sloboden Pechat".

Whether it is undeclared activity or work in the tax-legal system by concealing income and transactions in order to reduce the tax base and avoid paying public duties - the gray economy is destroying the Macedonian economy.

- The undeclared activity mostly belongs to some service activities such as repairs, servicing, crafts, home products, green markets and the like. But there is also non-declaration of income through various forms of tax evasion, non-issuance of fiscal invoices, non-registration of all sales, undeclared transactions, etc. I believe that the latter is a higher priority and covers a much larger percentage of tax evasion than the undeclared activity of some natural persons who do this as an additional activity and as a source of income from their own labor and work. This does not mean that the first part, mostly service activities, should not be formalized - the tax expert told "Sloboden Pechat" Dushko Gosevski.

He is determined that the shadow economy, apart from reducing tax revenues, also contributes to unfair competition and disincentives to tax morale among those who honestly and dedicatedly run their businesses and pay their taxes.

- From the aspect of valuing the work and someone's desire to earn with his own engagement, we can think with human sympathy and tolerance that he at least earned an honest income. But just around the corner there is someone who founded a company with the same activity, who pays contributions, taxes, industrial electricity and various fiscal and parafiscal duties and, on top of that, has to fight with unfair competition and a lower cost of a product, regardless whether it is about building a wall, making homemade cakes, vegetables, repairing mobile phones or something like that - he explains.

Approximately 700 million euros of uncollected fiscal revenues are from the gray economy

The Economic Research Institute Finance Think calculates that the gray economy accounts for 21,3 percent of the total economy, but there are other calculations that have produced a higher percentage. The differences in percentages are because when measuring the shadow economy, something that is invisible is being measured. But whatever percentage is taken, it is very high. The Public Revenue Authority and the Ministry of Finance say they are working to reduce the shadow economy through a number of mechanisms. One of them is the introduction of the e-invoice.

The Ministry of Finance says that they carried out activities to determine the level of the informal economy in the country and to calculate the indicators for the informal economy in order to deal with this phenomenon more easily. According to the information from there, the Ministry is working on establishing a system for collecting, processing and exchanging data in order to more efficiently detect, monitor and act in the direction of reducing informal activities.

- The key in this direction will be the strengthening of awareness of the informal economy and strengthening of tax morale and trust in institutions. One of the tools that will encourage this process is the introduction of the e-invoice for tracking turnover in trade. Efforts will be made to improve the legal regulation and efficiency in its implementation, thereby improving the business environment and creating an incentive framework for the formalization of the informal economy - the Ministry of Finance told "Sloboden Pechat".

The CEO of "Finance Think" Blagica Petreski estimates that approximately 700 million euros of uncollected fiscal revenues are from the gray economy. She notes that this is more than the Hungarian credit and an average of one Eurobond from previous years. Asked why the gray economy remains at a high level, he says that it is not simple to answer.

- On the one hand, of course, policy makers are not fighting the gray economy. Take the last Strategy for the Formalization of the Gray Economy 2018-2022 and look at its implementation, which was announced by the policy makers themselves in the next edition. We note that more than half of the planned activities for that battle were not realized, that is, they did not even begin to be realized. Then, a large contingent only started with realization, but did not finish, and the smallest segment is finished. But when you look at what it is, you notice that trainings were completed for various stakeholders - says Petreski.

It raises the question of whether the activities provided for in the Strategy are appropriate to the emerging forms of the gray economy and whether they will address the problem.

– For example, will the e-invoice help to suppress the gray economy? My simple answer is that I don't know, because we haven't done research on whether the dominant forms of the gray economy in the country will be dealt a major blow with e-invoice, or if it will be some cosmetic change. We have, in fact, been functioning that way for decades – we take something that has been applied in other contexts and assume that it will automatically work for us as well. So, we do not have sufficient diagnostics for our gray economy - says Petreski.

Another factor why the gray economy remains at a high level, according to her, is the behavior of citizens and companies, i.e. the high tolerance for the gray economy.

- Let everyone ask themselves the question when they were told in a store "if you pay me in cash, the price is lower by 18 percent". Most of the citizens do not refuse it, because they have a direct and short-term benefit, that is, they paid a lower price. Or when they don't receive a fiscal bill in a cafe. And so on. It is also related to our fiscal morale, which as a society remains relatively low - adds Petreski.

Pocket money for workers is a striking problem that feeds the shadow economy

"Finance Think" recognizes that it is not clear enough what the Macedonian gray economy consists of and has so far analyzed three segments of this problem, one of which is the unregistered micro-entrepreneurs, i.e. all craftsmen, artisans, confectioners, who provide a service or in their home or at the customer's home.

- We determined that this is not the dominant part of the gray economy, although it must be properly addressed and we gave appropriate and specific recommendations, which the previous government did not take into account, and we will see if the new government will want to use something from it. The second segment is undeclared labour. It occurs in two forms: fully undeclared workers and incompletely registered workers. There is no big problem with completely undeclared workers, since they occupy about 10 percent of the total employees, but half and more of them are unpaid family workers in agriculture. A bigger problem is the incompletely registered workers, which usually occurs as a form of minimum wage worker insurance, or less hours than full-time workers, and additional payment for the rest of the work performed by hand, or in an envelope, to avoid paying duties . This segment is large, I would say startling, estimate that more than a fifth of the total labor contribution remains under the radar of the authorities - says Petreski.

According to her, roughly, it is about 250 million euros of fiscal revenue lost annually for the state, in the form of direct taxes and contributions. The third segment is the under-declared turnover, that is, the situation in which the seller does not register the turnover to avoid paying VAT. For that, the openness of the Ministry of Finance and the Administration for Public Revenues in providing adequate data, which was not there before, is key. In any case, according to Petreski, strong political will, determination for impartiality and non-selectivity, and of course good staffing of the inspection institutions, primarily the IRS and the Labor Inspectorate, are essential for the fight against the gray economy.

The Public Revenue Administration says that they are working on introducing an integrated tax information system. This advanced system should enable the automation of all tax processes, including data validation, risk assessment and identification of discrepancies.

As for the introduction of the e-invoice, the IRS says that the process will include the preparation of specifications and procurement of the necessary IT components (hardware and software), preparation of regulations (legal amendments), development of the software, testing of the system with end users and the like. These are interrelated and conditional activities, which will be planned in detail with deadlines. The goal of this project is to introduce more reliable reporting systems and e-services, i.e. new digital solutions: e-invoice, e-payment, e-issuance of documents, which will enable the connection and communication of the IRS with the "natural" systems of the tax authorities. bonds and undertaking transactions, that is, the processes of taxation and reporting to the IRS will be inserted into the systems of taxpayers as an embedded part of their business operations.

Guarantee for accurate tax calculation

The e-invoice will be a new digital service, which will facilitate the business operations of companies, and from the point of view of the tax process, this system will ensure that the data on taxable transactions come to the IRS in real time and that we have accurately calculated tax obligations. The calculation of tax obligations will be somehow integrated into the business itself, into the systems of taxpayers that will be connected to the IRS. Such new digital solutions will include the rules for calculating the tax, it will be a guarantee that the tax will be calculated in the correct amount, and the reporting to the IRS will happen in real time, when the taxable turnover or income occurs, the IRS says about " Free Press".

From there they explain that the establishment of the IT system for e-invoicing will be prepared with consultants.

- Hardware and software will be procured, there will be legal changes, software development, system testing with end users, etc. Of course, companies will be able to work with such a system. Companies, taxpayers and now work connected to IRS systems. The new system will be carefully designed, it will be simple so that all taxpayers can use it. It will enable connection, that is, a kind of networking of the companies, the IRS, the Customs, the Ministry of Finance and other parties. Through this system, all transactions representing the issuance of an invoice or other appropriate document related to the turnover of goods and services between taxpayers will be processed in real time - say the Public Revenue Administration.

Also, with the help of this system, it will be possible for the IRS to prepare the VAT return as a pre-filled tax return and in it to calculate the VAT liability or the VAT refund for each company or taxpayer, so that the VAT tax liabilities will be accurately calculated based on the data from the e-invoices.

– This will greatly reduce the risk of reporting unfounded requests for VAT refunds and misuse of budget funds through VAT refund fraud. The obligation to issue invoices through this system will put a kind of pressure on companies to not be able to accept business transactions with unregistered companies, that is, this mechanism will have an impact on reducing some emerging forms of the gray economy - say the IRS.

Another important link in the fight against the gray economy is to network institutions, in this case the Ministry of Finance, Customs and the IRS. It should happen with a World Bank project. In this way, it is planned to introduce a new Integrated Information System for Finance Management (IFMIS) in the Ministry of Finance, and an Information System for State Aid Management (SIMIS) in the Office of the Vice Prime Minister for Economic Affairs. IDIS will be implemented in the IRS.

- The full digitization of services to taxpayers will allow companies to save time and costs, and will also lead to an increase in tax collection, as well as a decrease in the informal economy, which helps formal businesses to increase their income through free, effective and fair competition - say the IRS for "Sloboden Pechat", but they do not specify when this will happen. All processes, they add from there, require time and the public will be informed.

The Ministry of Finance is determined that the e-invoice model aims to increase the efficiency of tax revenue collection, and at the same time to keep the costs of taxpayers at the lowest possible level by using the resources of the IRS.

– The basic concept of the e-invoice system will enable registration, recording and processing of invoice data in the IRS system. The e-invoice concept is planned to be implemented in accordance with the best European practices, i.e. it digitizes the entire process of issuing, delivering and receiving the invoice. The goal is for the e-invoice system to be applicable to all taxpayers, that is, to give all types of taxpayers the appropriate opportunity to create, submit and receive an invoice in electronic form - the Ministry of Finance explains.

The fight against the gray economy is a continuous process in the long term

The shadow economy has several emerging forms, and under the direct monitoring of the IRS should be those forms that refer to non-reporting of income and sales and their non-taxation. From there, they say they regularly remind taxpayers to report their income, have a tax calendar, taxpayer advisory visits, brochures and fiscal education for high school youth to learn why taxes are paid.

Tax expert Dushko Gosevski believes that in the past three decades our tax system has been set up in accordance with international standards and regulations.

Now it remains to focus on the last important tax issue from a systemic point of view, which is the fight against the gray economy as a continuous process in the long term. Tax policies, rates and conditions depend on the programs of political governments and can be debated on various grounds, but the fight against the gray economy is another, important and necessary segment that should be approached systematically and substantially.

- Yes, the necessary acts have been adopted in Macedonia to fight against the gray economy. First of all, I am thinking of the strategies of line ministries, such as the ministries of finance and labor; action plans have also been adopted which, in fact, are roadmaps for the steps that are being taken and will be taken in that part - he believes.

According to him, in a modern, digitalized economic world, the way to monitor taxpayers is by establishing a control system, which will be able to determine opportunities for potential tax evasion based on parameters, data and the most modern technical and technological methods.

- No matter how much the number of inspectorates or the inspectors themselves increases, it is physically impossible to control more than 70.000 active business entities and millions of transactions. In conditions of globalization, an economy without borders and artificial intelligence, the success of the fight against the gray economy, but also with every aspect of tax evasion, depends on modernization and the application of the most modern methods of monitoring and control - says Gosevski.

According to him, the tendency of a slight reduction of the gray economy is due to the digitization of payments and the reduction of cash transactions as part of the modern world and this, in itself, affects the reduction of cash flows as a source of the informal economy.

There are many comparative examples of the ways in which other countries have dealt with or are dealing with the gray economy. But the most important and first step is always diagnostics, that is, targeting the sectors, activities or potential tax hotspots where a specific action plan should be focused, says Gosevski.

– To determine what the tax base is and what part of that base is not reported, you must have adequate data on how much turnover is concealed. The turnover must be "recorded" in order to know the quantum of the tax base in one bar, on one street, in one city or in one activity, so that the tax administration can then monitor whether there is a deviation from the registration of income, with a variety of tools, cross data models, physical control and so on. The modern development of the economy, the automation and digitization of payments and the reduction of cash flows will help reduce the informal economy due to the very nature of the new global order, but a part of the work must be done by us as a society - Goshevski points out. .

With this text, the Free Press joins the initiative for increased transparency of the institutions that the Institute for Communication Studies implements in cooperation with the media within the "Use Facts" project, which is supported by the British Embassy.