Bulgaria's Gray Economy Turns Out to Be 40% of GDP

Business | October 14, 2010, Thursday // 12:54|  views

Bulgaria needs to stimulate electronic payments in order to restrict the gray economy, according to the participants in the forum. Photo by BGNES

The gray economy makes up about 40% of Bulgaria's GDP, shows a study of international consultancy AT Kearney, released a day after a Bulgarian minister mentioned a figure that is four times smaller.

The study of A.T. Kearney requested by Visa Europe was presented Thursday in Sofia at a forum entitled "Electronic Payments against the Gray Economy," organized by the 17 Bulgarian banks that are members of Visa Europe, the American Chamber of Commerce in Bulgaria, and the Bulgarian Business Leaders Forum.

According to the report, which encompasses 31 European countries, 37.7% of Bulgaria's GDP (or a little over BGN 31 B) is in the gray economy. Bulgaria is surpassed only by Latvia and Estonia.

On Wednesday, Bulgaria's Regional Development Minister Rosen Plevneliev said the gray economy was about 10-12% of the expected 2010 GDP, and amounted to BGN 7 B.

In countries such as Germany and France, the gray economy is reported to be about 1/8 of the national GDP, and about 10% in the UK, while in all of the surveyed European states combined it is found to be a total of EUR 1.8 T.

Two-thirds of the gray economy consists of unregulated labor relations, while the rest is mostly tax evasion. With respect to Bulgaria, the study has found that 48% of the employees receive part of their salaries in cash, which costs the state budget millions of euros. About two-thirds of this income, however, enters the official economy through VAT on consumer goods and services.

The participants in Thursday's conference have put forth a number of measures they believe can limit substantially the gray economy, including the electronic payment of all kinds of salaries and public services; the same is suggested for any kind of purchases or other transactions amounting to over BGN 1 500.

Furthermore, the participants has suggested stimulating bank card transactions by introducing a smalled VAT (which is 20% at present).

There are estimates that the increase of electronic payments by 10% would curtail the gray economy by 5%, which would have generated BGN 1.5 B for the state budget only the first half of 2010.

Experts have forecast an increase in the gray economy share in the tourism and construction sector in 2011 because of some tax burden increases – the upping of the VAT for organized travel from 7% to 9%, and the expected hike of social security payments by 2-3%.

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Tags: construction, tourism, AT Kearney, Visa Europe, gray economy, VAT, value-added tax


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