Illegal self-employment in the regions

April 22, 2016 18:37

According to various estimates, 10-25% of the working population is involved in ‘shadow’ business activity in Belarus. Most affected is the service sector, and cross-border trade in the Western regions. Illegal employment abroad is common to all regions. Belarus’ economic problems have motivated the government to attempt to pick into illegal incomes, but the social consequences of such undertakings are unpredictable.

The services market is the ‘greyest’ area of Belarus’ economy. Official salaries in this sector are the lowest. Informal incomes are not declared to the tax authorities. The nature of the majority of ‘grey’ incomes indicates that the ‘shadow’ economy is provoked by the government itself. The government could benefit more and raise more in income taxes if it created a free environment for business development, however, such a policy would contradict the system’s logic.

In general, the landscape of ‘grey’ earnings (excluding Western regions) is characteristic of all regions. The following groups conceal their ‘grey’ incomes from tax authorities: car mechanics, who repair cars in their garages; construction workers, who repair apartments; event organizers; photographers and cameramen; purebred animal breeders; teachers; tutors, and others. In Gomel oblast alone, the illegal car service market is about 40%.

Illegal activity in the Western regions traditionally rests on cross-border trade with EU countries in fuel, cigarettes and alcohol. Nielsen company research demonstrates that the illegal market in Lithuania was dominated by Belarusian cigarette producers, which made about 22% of total sales. The number of people involved in the ‘shadow’ economy varies from 400,000 to 1 million. In Grodno Oblast alone, about 80 000 working age residents do not have an official place of work and are neither students, nor retired.

The ‘grey’ economy’s scale is due to the fact that shadow incomes release social tension, and, until recently, the government was ready to ignore the semi-legal business activity. Moreover, this practice has embraced ordinary citizens and civil servants. According to unofficial data, in recent years, most officials in the Eastern regions (from heads of departments to chairmen of district executive committees) have opened private businesses in Russia (Smolensk, Bryansk regions). As a rule, their businesses relate to retail trade (shops) and catering services. Russia was chosen for two major reasons: firstly, to legalize shadow incomes earned in Belarus, and secondly, to insure against seizure of property in Belarus.

The upcoming presidential campaign, as well as structural problems in the economy, has led to a revision of the ‘releasing tension in exchange for loyalty’ strategy. The closer the 2015 election campaign, the more the government will increase its attack on illegal incomes, and the number of anti-corruption cases will grow. It is likely that the anti-corruption campaign will affect big-city mayors and members of the government, those who have long and effectively been engaged in illegal business activity.