The total amount of undeclared work in Finland is at least 900 million, but can reach up to 1.4 billion euros annually. These are some of the conclusions of the reports made by the Gray Economy Information Unit.
– Illegal work causes large losses, both in the form of taxes and uncollected social insurance contributions. If the problem is looked at on an international level, however, things are going quite well in Finland. But undeclared work is a significant problem in our country as well, and the fight against it must continue. I am very pleased that we have more detailed information at our disposal so that the authorities can enhance enforcement work in the right areas”, says Janne MarttinenHead of gray economy information unit.
The reports contain estimates of undeclared work in the statistics of wage earners, small businesses and entrepreneurs. Entrepreneurs seem to account for almost three quarters of the total amount of undeclared work. The remaining quarter is related to wage earners.
In the past, undeclared work was investigated almost entirely on the basis of various interviews or surveys. This time, the Gray Economy Information Unit of the Tax Administration made use of taxation data, tax audit reports and other material, as well as national statistics from Statistics Finland. In other words, the research method was a combination of several different approaches.
Undeclared work is a problem in low-income sectors that require a lot of labor
Companies pay illegal, undeclared wages in total, estimated at 240–400 million euros per year. Jobs and salaries not reported to the authorities cause annual losses of 130–210 million euros to the Finnish state. This loss is partly a tax shortfall, partly a gap made up of lost social security payments.
Less than one percent of all wages paid by companies to employees belongs to the category of illegal, dark wages.
Typically, a workplace that pays employees a hidden salary is a construction, restaurant or transportation company, or it can be a warehouse company or a retailer.
These business sectors require a lot of labor to produce their goods or services; The salary level is relatively low and payment in cash is common.
“The tax administration constantly monitors labor-intensive industries such as construction. We have recently had an enforcement campaign with the taxi industry. Our next campaign concerns restaurants. However, the tax control we use can detect negligence in almost all industries”, says Tarja Valsideputy director in the unit responsible for combating the gray economy of the Tax Administration.
Undeclared business income means a tax deficit of several hundred million euros
One of the conclusions of the recent reports was that the shareholders of joint stock companies illegally pay themselves around 430-590 million euros per year. This results in an annual tax deficit of around 110-150 million euros.
About 10 percent of the sums received by shareholders are various forms of undeclared, illegal work.
Illegal payments to shareholders usually occur in industries where it is common for employees to be paid an illegal salary as well.
“If a company pays its employees undeclared wages, it is likely that the company has a shareholder who also receives undeclared money,” Janne Marttinen points out.
Since entrepreneurs do not pay themselves a salary, undeclared work typically takes place among them in the form of filing an income tax return, where the taxable profit is too small.
According to the report, the illegal or undeclared work of entrepreneurs is 220 or even 400 million euros per year, which means a roughly estimated tax deficit of 70–120 million euros. The estimate shows that 10 percent of the actual financial result of entrepreneurs remains under the veil of undeclared work.
The strategy and action plan to combat the gray economy must be continued
Finland has established an effective cooperation network between administrative branches that manages undeclared work and the gray economy. Since 1996, there has been a national strategy combined with an appropriate action plan, the purpose of which is to enhance and guide cooperation.
“Based on the recently published reports, it is clear that Finland must continue the ongoing long-term monitoring activities. It is necessary that our country maintains a similar strategy and action plan in the future. This ensures that we are able to work together, by focusing our joint efforts across administrative sectors, to combat undeclared work and other forms of neglect, says Tarja Valsi.
Source: Tax Administration
Source: The Nordic Page