Close to quarter of private sector pay was not reported, says tax service

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The share of unreported wages in the Latvian private sector made up 21.6% in 2016, down 1.1% from a year before, Natalija Filipovica, tax administration head at the State Revenue Service, told the press on November 1.

Among payers of microenerprise tax, the share of unreported wages was 28%.

In monetary terms, roughly €940 million were paid out in unreported wages to employees paying standard taxes and unreported wages paid out to payers of microenterprise tax reached approximately €17 million, Filipovica said, adding that these figures did not include around €438 million in undeclared social security contributions and €223 million in undeclared personal income tax.

The Revenue Service's official said that around 200,000 employees in Latvia are paid unreported wages, with the share of the unreported money typically making up 20-50% of their total remuneration, or 30% on average.

Among businesses paying standard taxes, under-the-table wages were most commonplace in trade and construction, and the ICT sector was the leader among payers of microenerprise tax.

Filipovica said it was a myth that all entrepreneurs preferred paying wages under the table. The risk of unreported payments was detected for 25% of jobs paying standard taxes and 19% of jobs paying microenerprise tax.

The Revenue Service's research suggests that employees of the pre-retirement age are most likely to receive unreported wages.

The Revenue Service's deputy head Dace Peleka said that the Revenue Service has been drawing up analytical reviews since 2013 and that strengthening its analytical capacity is one of the service's priorities, enabling to enhance prevention.

"Previously, we used macroeconomic methods to calculate the tax gap, but now these calculations include profiling by companies and industries to figure out which companies do not pay their taxes and what could be done to encourage them to pay the taxes," Peleka said.

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