The shadow economy in Lithuania has been shrinking, but remains relatively large. The finance minister insists that dodging taxes is a Soviet legacy that is on the way to the trash heap of history, but experts say that the government has a share of responsibility.
Shadow economy, or the black market, still amounts to €2 billion in Lithuania, according to estimates by economists at Swedbank.
Finance Minister Vilius Šapoka has boasted that the government's target last year to reclaim €200 million from the shadow economy has been accomplished and this year's effort is progressing just as well.
“This Soviet relic, of stealing from the state as a form of resistance, will soon go to the trash heap of history,” Šapoka says. “If businesses cannot compete fairly and can only win by not paying taxes, it is a business of losers.”
In addition to businesses hiding taxes and paying their employees unofficial wages, the big part of the black market consists of cigarettes and petrol smuggled from Belarus and local moonshine alcohol.
The government should accept part of the responsibility for the viability of the black market, says Kęstutis Kupšys who heads an organisation, Lietuva be šešėlio (Lithuania Without Shadow), working to raise awareness about the shadow economy. Its website shows a “shadow map” and a metre measuring forgone taxes due to the black market.
“The state has thrown all its intellectual effort into discouraging its citizens from alcohol and tobacco consumption and, obviously, it does that primarily through bans and higher excise duties. That raises the price and, clearly, the criminals' profits,” Kupšys tells LRT TV.
When the price difference between legally traded goods and their black market equivalents is so great, many a consumer will chose to economize, according to Ieva Valeškaitė, an expert at the Free Market Institute thinktank.
“By buying a canister of smuggled petrol, they save several dozens of euros,” she says, adding that consumers are generally well aware when they buy black market goods.
Economists say that shadow economy normally recedes during the economic growth cycle. However, one reason why it lingers is that Lithuanians do not trust the government to use their tax euros well.
Opinion polls suggest that people in Lithuania believe only half of the government's budget is used efficiently. As a result, they continue to regard taxes as a cost they would like to cut.
Kęstutis Jovaišas, the head of the business management consultancy Civitta Lietuva, has looked into the black market from many angles and says that while low income does encourage people to avoid paying taxes, the propensity also depends on how they view public services.
“The inclination to go to the black market depends heavily on what people think about the public education system in their town: kindergartens, schools,” Jovaišas says. “Also, on how many welfare recipients they see who may not really need those benefits.”
In order to fight the black market, the government must set an example of transparency and show how it spends public money, he says.
On the other hand, there might be another dilemma. Politicians bragging about their accomplishments – and using taxpayer money to do that – could be perceived as campaigning, especially during election season.