Interesting link to study on the European Shadow Economy (pdf) (Patronized by Visa Europe), Hat Tip: Economia e Finanças (blog)
The shadow economy is 19% and growing in Portugal. This is around the average for Europe but in the high end for Western Europe. I would have thought it was larger in Portugal. Alas, I have no proof to that. But do bear in mind that such studies are not easy to perform and hard evidence is hard to come by.
However, let me point out that countries like Denmark, Norway, Germany and Sweden supposedly have parallel economies of around 15%. Considering then that southern Europe should only be in the interval from 19% to 25% is highly unlikely.
Undoubtedly the shadow economy will tend to grow under austerity measures and likewise the government will do all in its power to limit it. I remember reading about two actions recently announced/aired by the Portuguese government:
I have been told retail/services sales software in Portugal may for a small extra fee have double accounting enabled. You turn the key left on the cash register and the transaction is entered into the books and an invoice can be generated. Turn the key right and it goes into the shadows... Wouldn't surprise me none that them right key turners are in the majority!?
You cannot but succumb and admire human ingenuity involved in avoiding taxation. Only a politician lacking more (of our) money has more imagination.
The study, BTW, indicates that lawyers, doctors and other liberal professions are the worst culprits. It does remind me of a claim many years ago in Portugal shown in newspapers: 80% of all lawyers then declared they earned minimum salary. I doubt they dare to defraud to that degree currently as the tax authorities from time to time do wonder how the 7 Ferraris in the garage were paid on minimum salary. All in all, perhaps the play on the word "lawyer" to "lier" has more than one reason.
May I make a small suggestion to the government? Make a new law: Within 30 days 30 hours and 30 minutes from today all commercial establishments and liberal professions must emit a receipt/invoice (tax purpose valid) for all sales/transactions. If the amount is more than X euros the buyer's tax number must be included (or ID number for foreigners).
Make a public campaign explaining why tax must be paid by all, otherwise the ones not paying will have you pay! Within a short time, most will ask for the receipt and complain if not receiving it.
Next law: Within 1 year all such transactions must be transmitted electronically to the revenue services (for privacy reasons all private tax numbers must be anonimized)
Result: IVA (value added tax *) would bring in much more. IRC (company tax) and IRS (personal tax) will also bring in more. Some establishments and some liberal professionals will of course go broke/give up. But all in all the tax rates could be lowered and still the same revenue obtained. (Alternatively, and unfortunately more likely, we will also make the politicians happy by giving them more money to spend - in best case only some of the extra revenue will be returned to the honest citizens)
Apropos: The current government is aware of the problems and the previous government(s) have already made some rules concerning receipts/invoices. One of the recent proposed austerity measures is to let all citizens deduct 5% of the IVA paid. Of course that requires receipts. But what on earth should make people ask for more receipts after they have gathered 1/20 (say a month's worth) of what they spend in a year? Still it must be recognized as a beginning.
(*) Why on earth is value added tax called that? It does not add value to a product. It removes value. Say a product is worth 10. With 10 plus 23% VAT the price becomes 12,30. But the product still is only worth an inherent 10. The product now has as an extra cost of 2,30 for the consumer. The consumer loses 2,30. It is a value lost tax at the moment of acquisition: VLT! I of course know why it is called VAT. It is newspeak invented by politicians. The honest name would be sales tax or added cost tax.
The shadow economy is 19% and growing in Portugal. This is around the average for Europe but in the high end for Western Europe. I would have thought it was larger in Portugal. Alas, I have no proof to that. But do bear in mind that such studies are not easy to perform and hard evidence is hard to come by.
However, let me point out that countries like Denmark, Norway, Germany and Sweden supposedly have parallel economies of around 15%. Considering then that southern Europe should only be in the interval from 19% to 25% is highly unlikely.
Undoubtedly the shadow economy will tend to grow under austerity measures and likewise the government will do all in its power to limit it. I remember reading about two actions recently announced/aired by the Portuguese government:
- Invoices will be electronic and registered through the revenue service
- Fines for manipulating invoices/accounting are multiplied by at least a factor 7
A typical question in Portugal: Do you want it with or without invoice? Without, usually means you pay the bill without IVA (currently 23%). Also it means the transaction is not registered in the books. Curiously, you are nearly regarded as a retard when asking for an Invoice. Furthermore, why is it common practice most places by default to emit receipts that on the bottom declares?: Not valid for tax purposes Also, why does it take so long time many places to get a real receipt or invoice?
I have in the Algarve in a restaurant once waited 90 minutes for an invoice. Our local McDonald's emits receipts (for tax purposes) by default. They are however illegible due to a problem with the printer. I once asked for an legible invoice. That took 15-20 minutes to provide. Meanwhile the food got cold. Supposedly they fixed the printer. A few days later when I came back the invoice was again illegible. I, however, had learned my lesson and did not ask for another... To make sure, the receipt paper McDonald's and many other places use is for thermal impression. Like in the old fax machines. The paper unless kept at 43% humidity at a constant temperature of 19,3 degrees celcius in a dark place becomes slightly brownish - and most importantly: blank - within less than a month.
I have in the Algarve in a restaurant once waited 90 minutes for an invoice. Our local McDonald's emits receipts (for tax purposes) by default. They are however illegible due to a problem with the printer. I once asked for an legible invoice. That took 15-20 minutes to provide. Meanwhile the food got cold. Supposedly they fixed the printer. A few days later when I came back the invoice was again illegible. I, however, had learned my lesson and did not ask for another... To make sure, the receipt paper McDonald's and many other places use is for thermal impression. Like in the old fax machines. The paper unless kept at 43% humidity at a constant temperature of 19,3 degrees celcius in a dark place becomes slightly brownish - and most importantly: blank - within less than a month.
You cannot but succumb and admire human ingenuity involved in avoiding taxation. Only a politician lacking more (of our) money has more imagination.
The study, BTW, indicates that lawyers, doctors and other liberal professions are the worst culprits. It does remind me of a claim many years ago in Portugal shown in newspapers: 80% of all lawyers then declared they earned minimum salary. I doubt they dare to defraud to that degree currently as the tax authorities from time to time do wonder how the 7 Ferraris in the garage were paid on minimum salary. All in all, perhaps the play on the word "lawyer" to "lier" has more than one reason.
May I make a small suggestion to the government? Make a new law: Within 30 days 30 hours and 30 minutes from today all commercial establishments and liberal professions must emit a receipt/invoice (tax purpose valid) for all sales/transactions. If the amount is more than X euros the buyer's tax number must be included (or ID number for foreigners).
Make a public campaign explaining why tax must be paid by all, otherwise the ones not paying will have you pay! Within a short time, most will ask for the receipt and complain if not receiving it.
Next law: Within 1 year all such transactions must be transmitted electronically to the revenue services (for privacy reasons all private tax numbers must be anonimized)
Result: IVA (value added tax *) would bring in much more. IRC (company tax) and IRS (personal tax) will also bring in more. Some establishments and some liberal professionals will of course go broke/give up. But all in all the tax rates could be lowered and still the same revenue obtained. (Alternatively, and unfortunately more likely, we will also make the politicians happy by giving them more money to spend - in best case only some of the extra revenue will be returned to the honest citizens)
Apropos: The current government is aware of the problems and the previous government(s) have already made some rules concerning receipts/invoices. One of the recent proposed austerity measures is to let all citizens deduct 5% of the IVA paid. Of course that requires receipts. But what on earth should make people ask for more receipts after they have gathered 1/20 (say a month's worth) of what they spend in a year? Still it must be recognized as a beginning.
(*) Why on earth is value added tax called that? It does not add value to a product. It removes value. Say a product is worth 10. With 10 plus 23% VAT the price becomes 12,30. But the product still is only worth an inherent 10. The product now has as an extra cost of 2,30 for the consumer. The consumer loses 2,30. It is a value lost tax at the moment of acquisition: VLT! I of course know why it is called VAT. It is newspeak invented by politicians. The honest name would be sales tax or added cost tax.
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