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Black economy in Portugal worth 25% of GDP

Portugal’s “parallel” economy has never been so large, representing 25% of the country’s GDP.

Increases in VAT and the unemployment rate may explain, to a large extent, why more and more Portuguese are either moonlighting in second jobs and receiving cash in hand or working and not informing the authorities about their earnings.

In 2010, Portugal’s black economy grew by 2.5% and is worth €42.7 billion, which the taxman is missing out on.

The figures were released by the Non-Registered Economy Index which was created by the Economy and Fraud Management Observatory (OBEGEF) based at Porto University’s Faculty of Economics.

In 2009, when the index was presented for the first time, the parallel economy represented 24.2% of the nation’s GDP.

One year later, in 2010, Portugal’s non-registered economy, as the black economy likes to call itself, grew by 2.5%, which pushed up the overall percentage to 24.8%.

In 2010 Portugal’s overall GDP stood at €172.7 billion, of which €42.7 billion represented under-the-table business which was not declared to the taxman.

According to the authors of the study, Óscar Afonso and Nuno Gonçalves, that figure is expected to jump up to around 25% this year.

Both experts believe that Portugal is failing to adequately tackle the problem which has always been consistently high in Portugal since the early 1970s.

In an initial study, looking at the period between 1970 and 2009, the parallel economy rose from 9.6% of GDP to 24.2% in 2009.

They state there are various reasons for tax evasion in Portugal including increased VAT levels, an increase in the State’s role and interference in the economy and higher unemployment.

They also say that supervision from tax inspectors is ineffective while the poor functioning of the justice system also leads to greater tax dodging.

Óscar Afonso says that when talking about the parallel economy, over 20 factors need to be taken into account, including illegal production, informal production, production for auto-consumption and services and business dealing not considered by the statistics.

Tax avoidance is growing in agriculture and services but falling in industry, not because of greater honesty, but because industrial production has fallen in Portugal.

Nuno Gonçalves believes that if people knew exactly what their taxes were being spent on and that it was beneficial, more people would opt to pay their taxes in full.

The pair also believes it’s a question of education and civic responsibility from kindergarten level to universities to change people’s cultural attitude to paying taxes and seeing that they are for the good of society as a whole. C.G.