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The share of the shadow economy has been on the wane in the past few years, however, the state is yet to live up to the role of a watchdog insuring the rule of law instead of actively participating in illicit dealings, participants in a round-table discussion, titled Shadow Economy in Bulgaria: Trends and Challenges, heard on May 27 in Sofia.

To tackle the problem, which is in close correlation with corruption and under-reporting of both profits and turnover, the state needed to work together with the private sector and the commitment of all stakeholders in the process, Ognian Shentov, head of the Center for the Study of Democracy (CSD), said.

For this reason, the round table was attended by Bulgaria’s Finance Minister Plamen Oresharski, Interior Minister Michail Mikov, Sofia mayor Boiko Borissov, the head of the National Audit Office Valeri Dimitrov, heads of Bulgaria’s trade union blocs and businesses.

The state made a number of substantial tax and social security reforms aimed at offering disincentives to businesses to hide a portion of their turnovers and avoid paying taxes and social security contributions on the full size of salaries to employees, Oresharski said. Now Bulgaria enjoys the lowest corporate tax rate and has reduced the social security burden from 43 per cent to slightly above 30 per cent, according to the finance minister.

These measures have aided the state’s two revenue collection agencies – the National Revenue Agency and the Customs Agency – to report increases in collections.

That said, however, the state is still too much intertwined with illicit large-scale businesses, Sofia mayor Boiko Borissov said. He expressed surprise to see scam schemes involving both criminals and politicians persisted over time and the perpetrators enjoyed impunity. He gave as a recent example the re-sale of municipal property for extra low prices, only for it to be bought back later at higher prices, draining billions of leva in the process.

Another example was the surreptitious sale of diesel fuels, 22 per cent of which was currently being bought and sold at duty free gas stations at border checkpoints. Yet a third one was the liquor business. Judging by official market figures, Bulgarians were now drinking five times less than during the times of former finance minister Milen Velchev, Borissov said.

He called, therefore, for enhancing the role of law enforcement agencies and all control institutions.

The idea was taken up by the head of the National Audit Office Valeri Dimitrov. He argued that the size of the shadow economy was directly proportionate to the size of economy and that the state authorities were given too much discretionary power, which allows them to do anything they wanted.

He, therefore, called for changes to the Law on State Property and Law on Municipal Property to trim the municipal and state authorities to ensure their actions were fully regulated.

He also said he believed that the share of shadow economy would decrease if businesses were given more economic freedom. According to his observations, the more economic freedom a state enjoys, the smaller the share of shadow economy.

“The state has failed in an intrinsic function, in delivering the rule of law,” Dimitrov said. “Instead, it acts as a dishonest referee in a football match, joining as a defender for one team or forward for the other, depending on its business interests.”

The fact that such multi-party fora exist, are an instrument to instill intolerance toward shadow economy with the public, media, politicians, said Mihail Mikov. “The meeting is also a way for the entire community to recognise that money does smell,” the minister added.

The CSD, which organised the event, plans to hold another round table on shadow economy at the end of the year.

May 27 2008, Source: sofiaecho.com