A billion euros pass annually in the gray zone

The shadow economy, which refers to the unreported income of registered companies and the payment of wages or part of wages without calculation of taxes and contributions, is worth 2022 percent of the estimated gross domestic product (GDP) in 20,6, according to research on the scope and structure of the gray economy in Montenegro, which was carried out by the IPSOS agency for the needs of the Ministry of Finance.

The value of Montenegrin GDP for this year is estimated at 5,3 billion euros, so according to this research, the estimated amount of the gray economy among registered companies and entrepreneurs would be worth 1,1 billion euros. This research did not deal with the assessment of the gray economy among those who are not registered as companies or entrepreneurs at all.

In a research using the same methodology from 2014, the estimate of the gray economy amounted to 24,5 percent of GDP.

The data of this research were obtained based on a survey of 316 companies and entrepreneurs and 1.214 citizens. It was implemented during February and March of this year after the tax reform which increased the minimum salary to 450 euros, significantly reduced the tax burden on earnings and abolished the contribution to health insurance.

The Ministry of Finance stated that, even though it is a slightly lower rate compared to 2014, they are prompted by the recognition of Montenegrin companies, i.e. their managers in the survey, that almost every tenth company transferred part of its turnover and activities to the gray area. zone.

"A slightly lower tendency towards gray economy activities in the last few years is caused by the improvement of the business environment and the reduction of unfair competition from the informal sector. "Relatively good marks are recorded for the success of various inspections - labor inspection, the Revenue and Customs Administration, as well as market inspection, in the segment of detecting employees without employment contracts and other forms of informal employment and the gray economy", stated the Ministry of Finance.

Compared to other countries where this method was applied, the volume of the gray economy of Montenegro, as stated in the research, is close to the level in Poland and Latvia, higher than in Lithuania, Estonia, and lower than in Russia, Ukraine, Kyrgyzstan, Moldova, Kosovo and Romania.

According to another methodology - the MIMIC method, which was implemented by the International Monetary Fund, and which also includes the informal sector (unregistered companies), the shadow economy in Montenegro in 2019 amounted to 37,5 percent of GDP. In that year, the GDP was 4,95 billion euros, so the value of the gray economy, according to this methodology, would be 850 billion euros.

"After Kosovo and North Macedonia, Montenegro records the largest volume of the gray economy compared to the 47 European countries included in this assessment," the report stated.

According to this report, a larger part of the structure of the gray economy, 56 percent, consists of undeclared wages of employees, that is, partial or full payment of wages in cash "on hand", than undeclared income of companies - 44 percent. If you compare this data with the total percentage and value of the gray economy of 1,1 billion, it would mean that around 600 million euros are paid to workers annually in the name of wages or part of wages, without reporting to the tax authorities. Also, about 500 million would be the income of companies that did not report.

The report also states that 83 percent of the gray economy takes place in the central region (Podgorica, Cetinje, Danilovgrad and Nikšić), nine percent in the northern and eight percent in the coastal region. This is surprising information considering the high traffic and the number of workers on the coast during the season. It is also possible that businessmen from the central region in this research were more honest than their colleagues from the coast when answering questions about the gray economy.

"Approximately half of the shadow economy is realized in trade, followed by other services, catering and transport. In 2022, according to the owner/manager's own admission, approximately every tenth business entity in Montenegro was engaged in activities of the gray economy, which represents a multiple decrease compared to 2014, when every third company was involved in these activities. Such data could indicate the moderate involvement of Montenegrin companies in gray economy activities, bearing in mind the tendency of owners/managers to conceal their irregular operations, but also due to the fact that only the gray economy in registered companies is covered," the report stated.

Observed according to the forms of informal business, 5,2 percent of business entities had informal (illegal) employees, while 4,5 percent made more than 10 percent of payments in cash, even though they are liable for VAT," the report stated.

Half did not answer whether they bribed the inspectors

About 16 percent of employers stated in the survey that bribery of inspectors for non-payment of fines happens often or very often.

"It is important to emphasize that even half of the employers did not want to express themselves on this issue, which may indicate that this form of behavior is seen as something unacceptable, regardless of how frequent it is," the report says.

Most complain that their competition is working illegally, but they would not report them

More than 60 percent of surveyed companies and entrepreneurs stated that their competition includes those who practice some form of informal business and that because of this, legal business is difficult for them.

"As many as three out of four business entities state that they have lower annual revenues due to unfair competition. However, less than a third of companies express their willingness to report a competing company that operates informally to the competent inspection, and a significant proportion of those who state that they would report a given company do not know which specific inspection they would contact. The reluctance to interfere in other people's business, but also the belief that even after reporting the companies will continue to operate as they did before, are the key reasons why companies do not report the informal business of their competitors," the report stated.

The surveyed citizens think similarly because 77 percent would not report a point of sale that did not issue them a fiscal invoice, and two-thirds did not request a fiscal invoice in case it was not issued to them when making a purchase.