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2012.11.16 10:33

Swedbank study reveals 7.5bn litas in the ‘shadow’

The Lithuania Tribune2012.11.16 10:33

An additional 7.5bn Litas would have been collected from the public in taxes if Lithuania’s shadow economy had been eliminated. The figures have been released by Swedbank’s Institute of Private Finances, following its analysis of taxes paid by residents of the country, delfi.lt wrote on 12 November.

An additional 7.5bn Litas would have been collected from the public in taxes if Lithuania’s shadow economy had been eliminated. The figures have been released by Swedbank’s Institute of Private Finances, following its analysis of taxes paid by residents of the country, delfi.lt wrote on 12 November.

Elimination of the ‘shadow’, i.e. the payment of consumption, social security and income tax, would leave the residents to fill a gap in the state budget of around 7.5bn Litas. Funds collected from consumption tax would be sufficient to cover personal income tax (PIT) revenue, and the inclusion of social security contributions and employer income tax would make tax revenue even greater, according to Odeta Bložienė, Manager of Swedbank’s Institute of Private Finances in Lithuania.

According to Bložienė, the ability to reject PIT is a theoretical example which illustrates the importance of Lithuania’s shadow economy – in practice it is impossible to eliminate this ‘shadow’. According to a study conducted by the Lithuanian Free Market Institute, the shadow economy constituted 27% of gross domestic product in 2011 – smuggling activity contributed to the largest portion of the shadow.

Swedbank’s Institute of Private Finances has estimated that the majority of state tax revenue lost from residents is due to the existence of this unofficial sector. State losses due to illegal employment and ‘under the counter’ wages in 2011 amounted to 2.3466bn Litas. A further 2bn Litas in income was left uncollected in resident tax due to the illegal supply of goods and services – half due to the illegal sale of goods and services, and half due to smuggling.