The Parallel Economy is a way of earning money bypassing the state. The activity of such a business is hidden from taxes and any other regulation by the authorities.
No matter how entrepreneurs want to hide the illegal format of work, the tax service every time finds ways to get to them. In addition to this structure, law enforcement agencies monitor the growth of the Parallel Economy.
High growth is evidence of problems in the mechanism of government. Of course, there are always entrepreneurs who seek to cut taxes, but they can be called a harmless phenomenon against the backdrop of much greater economic crimes.
Rosfinmonitoring in 2018 tracked that the Parallel Economy sector exceeded 20 trillion rubles. In comparison, the hidden segment amounted to 20% of GDP in the same year.
Rosfinmonitoring does not provide a methodology for assessing the economy. It is only known what exactly it includes in the sector hidden from government agencies:
- gray import, when it is imported at reduced duties due to an incorrectly completed declaration;
- concealment of profits from taxes;
- gray salary.
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Structure of Parallel Economy
The definition of the Parallel Economy is broad. It can be attributed to a box of chocolates, which the patient thanks for the doctor’s help, a parental fee for curtains for the class, as well as theft, bribes, drug distribution, human trafficking, and more.
To do this, consider the relationship of the Parallel Economy with the official sector. There are three sectors of TE: “second”, or “white-collar”; “gray”, or “informal”; “black”, or “underground”.
|Official workers of the “white” sector
|Corruption, profit sharing without production
|Produce goods and provide services
|Release prohibited goods
|Common with the “white” economy
|Strongly associated with the “white”
|Exists separately from the “white”
The Parallel Economy has been studied for many years, but economists still do not have a common set of definitions for this sector.
The main ingredients are corruption and tax evasion. This involves senior managers, managers. They do not fix part of the income and redistribute it among themselves.
These violations often flash in the press, and society has become accustomed to them. Many prefer to turn a blind eye to this, believing that without bribes, antitrust violations, false advertising, and the rest, it is impossible to build a business.
The “white-collar” sector includes the violation of the rights of hired personnel, creditors, and the state.
Victor bought the cafe, which was on the verge of bankruptcy. From the first months, employees of the sanitary and epidemiological supervision began to visit the institution with checks. Each inspection ended with a fine.
Although Victor complied with all the regulations and standards, the inspectors did not stop being attentive to the catering business. To smooth the interest of sanitary and epidemiological supervision, the owner of the cafe transferred a bribe to the card of one of the inspectors. As a result, the inspection of the institution became planned, and not regular.
This sector is more autonomous. It includes legal, but not registered economic activity. More often it is a small business, for example, home crafts, seasonal work on the farm.
If the “second” economy parasitizes on the “white”, then the representatives of the “gray” either do not want to register a business, or a report for such work is not provided.
The “gray” sector includes tutors, nurses, bloggers, not officially registered taxi drivers, actors who earn extra money at children’s matinees, and others.
This sector is also called informal. In Russia, in the second quarter of 2021, the number of people employed in this area increased by 11.5% and amounted to 15 million people. Not necessarily specialists from this field will evade taxes. Their working relationship can be formalized, but only for a while.
Also, the “gray” sector includes enterprises that pay part of the salary in envelopes. It is not at all profitable to work in such a place, since the employee receives a pension or maternity allowance in the minimum amount. In addition, it will be problematic to take a loan from a bank .
“Black” is isolated from the state, although it can use its institutions. This sector includes all activities excluded from normal legal life.
Robbery, extortion, racketeering, drug trafficking, slavery, organ trafficking – all this belongs to the “black” economy. This is done by organized crime groups. To keep such a business afloat, an extensive network is being created.
In the 1990s and early 2000s, a large organized crime group operated around a petrochemical enterprise in Kazan. Members of the group took products out of the factory and sold them on the shadow market.
The bandits were provided with access to warehouses with goods by employees of the enterprise. Theft amounted to more than 300 million rubles. When the crime was solved, 12 people were brought to criminal responsibility.
Economists refer to such criminal schemes as a “black” economy, they are investigated by the Ministry of Internal Affairs, the FSB and other law enforcement agencies.
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Signs of Parallel Economy
When the political and financial situation in the country is unstable, the Parallel Economy begins to grow.
You can check this in several ways:
- official statistics are at odds with the real situation. This can be understood from sociological surveys of people, as well as selective checks;
- the level of consumption does not match official income;
- the resources that the company spends during work do not match the actual ones;
- growing demand for money.
When the data of consumed resources, monetary payments in the country differ greatly from those predicted, this indicates tax evasion. History shows that state-financed organizations and those engaged in legitimate business suffer from FC.
Causes of the Parallel Economy
Sergey took up agriculture two years ago. At first, the business was not profitable, but organic food became so popular that Sergey bought a plot of land and additionally began to grow seedlings and strawberries for sale.
In the summer, he did not have enough workers, so he began to attract hired workers from other cities for three months. They were paid in envelopes. Such activities can be called shadow or informal.
When starting a business, an entrepreneur draws up a plan for several years. It lists costs, income and payback. In the event of force majeure, an entrepreneur may lose profits, and he will have a desire to go into the shadows.
Businessmen understand that if they do not have taxes, corruption and constant control by government agencies, they will receive super profits. For this reason, it is increasing in most countries.
Businessmen themselves cite the bureaucracy that must be passed before registering a company as one of the reasons. At this stage, many become shady.
It is detrimental to the state. Due to its growth, social payments are reduced, since this sector does not pay taxes. TE also entails the growth of corruption, for this reason the development of the state is slowing down.
Working conditions in it are deteriorating, as the enterprise sets its own standards, which are contrary to labor legislation. With the growth of the hidden market, inflation increases, and instability in the payment turnover also increases.