Proportion of envelope wage earners remains low
The results of the informal economy survey conducted among Estonian residents show that the receipt of envelope wages or knowing that someone else is receiving them is at the same level as in the previous year. However, a study conducted by the Estonian Chamber of Commerce and Industry among entrepreneurs shows a decrease in the payment of envelope wages.
The 2022 informal economy survey commissioned by the Tax and Customs Board (MTA) and conducted by Turku-Studies AS shows that more than one-fifth of the population (23%) know someone who receives envelope wages and 5% received them themselves. Compared to the previous year’s survey, the corresponding numbers are 24% and 4%.
However, the survey conducted by the Estonian Chamber of Commerce and Industry among entrepreneurs states that compared to the 2021 survey, the percentage of respondents who estimate that envelope wages account for more than 50% of all payments has decreased the most among entrepreneurs - in 2021, the percentage of respondents was 4% and in 2022 only 1%. While on the basis of the previous survey 50% of the respondents thought that the percentage of envelope wages was up to 5% of the payments, the most recent survey showed that the percentage of such respondents is 55%.
According to Mait Palts, Director General of the Chamber of Commerce, based on the results of the survey, the decreasing percentage of envelope wages is a positive step towards fair competition in our economic environment and between companies. "The results of the survey confirm that a consistent effort to combat the informal economy and illegal wages has yielded results," said Palts.
"However, it is important to continue working to ensure that the positive trend continues during this difficult economic time, so that we can ensure that the Estonian business environment remains transparent and fair," he explained.
Construction sector continues to be a problem
Both the informal economy survey and the results of the survey conducted by the Estonian Chamber of Commerce and Industry estimate construction as the most problematic sector, followed by accommodation and catering, and art, entertainment and leisure.
The estimated tax loss of the MTA in the field of construction has been more than 20 million euros per year for years. However, from 1 October, the obligation to register the construction supply chain and the time spent on the construction site of employees enters into force in the information system of the Tax and Customs Board.
"Adapting to the new system will certainly take time and we would rather advise and support entrepreneurs in implementing it to work, but in the long run it will give us better levers to carry out inspections. The aim is that in the future, only persons properly registered to work will work on the construction sites, of whom the main contractor and the state have a clear overview and who are paid fair wages," explained Mälter.
"It is positive that the awareness of the employees of the construction and real estate companies is also higher - 69% are aware that a claim for unpaid taxes can reach them. However, it is worrying that the survey shows that more than one in three respondents do not know that taxes not paid by the company can be collected from the person themselves. MTA’s ambassadors for the tax and customs wisdom do a lot of explaining work and especially among young people, but this information is definitely a sign that we need to prioritise preventive activities even more in addition to inspections," said Marc Mälter, Head of the Tax Audit Department of the MTA.
"From the perspective of entrepreneurs, illegal economic activities, especially in the construction sector, are still a matter of concern, but on the positive side, it is good to see that, according to the results of last year’s survey, the percentage of illegal economic activities in the construction sector has decreased slightly (89% and 82%, respectively)," said Palts and emphasised that entrepreneurs play an important role in the fight against the informal economy, adhering to the principles of fair business and demanding it from others. However, it is equally important to constantly discuss with entrepreneurs how the government and the tax authority can still support honest entrepreneurship and what would be the more reasonable solutions to ensure a more honest tax environment. These solutions should always be developed together.
Income earned through platforms is mostly declared
In 2022, 3% of Estonian residents earned income through different platforms (Bolt, Wolt, Fudy, AirBnb). Two thirds received income of €1,200 per year and nearly two thirds (64%) declared income tax on their income. Of those who did not have a pre-filled declaration, more than half of the respondents completed it themselves. The increase in the declaration of income earned from platforms is also supported by the surge in the use of the enterprise account. While there were 2,719 active accounts in 2021, it increased to almost 7,000 last year.
"People’s tax discipline was certainly facilitated by the focused activities of the MTA in this area last year and the knowledge that from this year the platforms have an obligation to share data with the MTA themselves," Mälter explained.
The estimated tax loss on the payment of envelope wages was 99.8 million euros in 2022, incl. 52 million euros as social tax loss and 45 million euros as income tax loss. The results of the 2022 shadow economy survey can be found on the website of the MTA "Press materials."