Economy slips through the tax net

news: Economy slips through the tax net

PORTUGAL has one of the highest parallel economies in Europe, if not the world, according to the findings of two Portuguese economists. In their book, Accounting for the Hidden Economy: Barriers to Legality and Legal Failures, Dr. António Antunes and Tiago Cavalcanti blame the inefficiency of the bureaucracy and the ineffectiveness of the judicial system for the existence of a parallel economy.

According to statistics by Lisbon’s Universidade Nova, a 22 per cent slice of the country’s GDP slips through the government’s hands and avoids taxation. “If you go to a small shop to buy a piece for a vacuum cleaner, the shopkeeper may well ask you if you want to pay IVA. If you say ‘no’, the shopkeeper won’t even record the transaction,” Dr. Antunes stated.

Dr. Antunes and Cavalcanti also blame the country’s parallel economy on the lower level of economic development compared to other EU partners and the bureaucratic red tape that, in a poor country, make it hard for small businesses to stay afloat. But they also say that this type of business practice is culturally endemic and that it is seen as heroic or socially acceptable to avoid paying your taxes. In countries like Denmark or the US, a high level of industrialisation, an efficient tax collecting system, a functioning legal system and less red tape are combined with a social conscience which accepts that paying taxes is fair and necessary for society.In Portugal, many small and medium-sized businesses carry on lucrative activities without declaring them to the taxman. Another area, notorious for parallel economic activities, is in the service sector, such as catering and cafés, domestic cleaners, painters and decorators, plumbers, carpenters, small building firms, car mechanics, and textile traders and manufacturers.

In the state budget for 2005, the government has made fiscal fraud its top priority and plans to introduce a dedicated fiscal police force to investigate companies and individuals that are believed to be avoiding their tax obligations.