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The grey economy had been on the wane until 2006, but since 2007, the year of Bulgaria’s accession to the European Union, it has regained ground to become 25 to 35 per cent of the country’s gross domestic product.

The country is also yet to live up to its role of a watchdog assuring rule of law instead of acquiescing to illicit dealings.

The most flagrant instances of grey economy, going hand-in-hand with corruption instances, are in construction, public procurement and general under-reporting of turnovers and salaries for tax evasion purposes.

This is what was discussed at a roundtable titled Grey Economy in Bulgaria: Trends and Challenges on May 27 in Sofia. Organised by the Center for the Study of Democracy (CSD), it gathered Finance Minister Plamen Oresharski, Interior Affairs Minister Mihail Mikov, Sofia mayor Boiko Borissov, Dutch ambassador to Bulgaria Willem van Ee, representatives of industrial organisations and analysts, to consider ways to tackle the resurgence of the grey economy.

CSD bound the occasion to the release of its most recent Index of Grey Economy, which it has been compiling since 2002.

CSD head Ognyan Shentov was satisfied with the turnout, adding that only a public-private partnership – involving all stakeholders in the process of combating grey economy – could deliver results.

The state had made a number of substantial tax and social security reforms to discourage businesses from partially hiding their turnovers and avoiding paying taxes and social security contributions on the full amount of employee salaries, Oresharski said. Now, Bulgaria enjoys the lowest corporate tax rate and has reduced the social security burden from 43 per cent to slightly more than 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 was still too much intertwined with illicit large-scale businesses, Borissov said.

He expressed surprise over seeing scam schemes involving both criminals and politicians, which have not only persisted over time but have also seen perpetrators enjoying impunity.

Borissov gave as a recent example the re-sale of municipal property for extra-low prices, only for it to be later re-purchased at higher prices. The scheme resulted in draining billions of leva, he said.

Surreptitious sale of diesel fuel was another example. About 22 per cent of the diesel transacted was being bought and sold in duty-free gas stations at border checkpoints, Borissov said.

And yet a third sector was the liquor business. If official market figures were to be trusted, Bulgarians had reduced their liquor consumption fivefold since the times of former finance minister Milen Velchev, Borissov said.

Therefore, he called for enhancing the role of law enforcement agencies and all control institutions.

Head of the National Audit Office Valeri Dimitrov concurred. He argued that state and municipal authorities were given too much discretionary power.


He, therefore, called for changes to the Law on State Property and Law on Municipal Property to trim the authority of municipal and state authorities and ensure oversight of their actions.

He also argued that the share of the shadow economy would decline if businesses were given more economic freedom. According to his observations, the more economic freedom a state enjoys, the smaller the share of grey 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 as a forward for the other depending on its business interests.”

Such multi-party fora as the one on May 27 were an instrument to instil intolerance towards a shadow economy with the public, media, politicians, said Mikov. “The meeting is also a way for the entire community to recognise that money does smell,” he said.

June 2 2008, Source: sofiaecho.com