From black to white: What will we acquire by eliminating shadow economy? –COMMENT

8 November, 11:15 Share on social media:

Today, the shadow economy’s share in GDP concerns world countries. The high level of this indicator is considered a threat to the economic security of every country. According to the estimates of the most pessimistic statisticians, approximately 65 percent of employees in the world are connected with the non-formal economy. The volume of shadow economy is estimated at 10 trillion USD across the world.

What kind of threats does shadow economy cause?

As a result of the shadow economy’s existence, undoubtedly, the macroeconomic development degrades; a number of economic laws do not work and are of only formal character. It damages the economy.

Firstly, the revenues to the budget decrease, the state gets deprived of the revenues it could obtain, and thus, possibilities for additional investment programs get limited.

Secondly, the macroeconomic policy does not justify itself, does not yield effective results; competitiveness goes down.

Thirdly, the local economy loses its attractiveness for foreign investors.

Thus, if the political government has enough wil and working mechanisms for its elimination, and if they are carried out consistently, definitely, shadow economy loses its place in the general economy.

Reforms and from “shadow” to light

The priorities the Azerbaijani state has defined for the creation of transparent economy and the reforms carried out in the recent years result in the strengthening of transparent economy, as well as the fall of shadow economy’s share in the general economy.

It is no coincidence that the reforms carried out in our country are highly assessed on an international scale. Azerbaijan improves its position on ratings of international organizations. For instance, Azerbaijan has been placed on the list of the 20 most reformative countries in the World Bank’s “Doing Business 2020” report.

According to the report, Azerbaijan has eased the entrepreneurship activity in 4 directions. These fields are the registration of property, taking credits, protection of the rights of minority investors and implementation of the execution of agreements.

Reforms ensure the formation of transparent economy and elimination of shadow economy. The reforms in the field of taxes and customs have yielded significant results and made a positive impact on other fields of economy as well.

Transparent economy and social programs

In the 9 months of the current year, unscheduled 700 million AZN have been transferred to the state budget from customs and tax bodies. It has given the state an opportunity to hold social events.

The formation of transparent economy is one of the priorities and requirements President Ilham Aliyev has set before the government.

President Ilham Aliyev drew special attention to this issue at the economic meeting held on October 15th: “During my speech at my inauguration ceremony held after last year’s presidential elections, the targets of the main directions were determined. That speech was my program. After that speech, we began to take steps and deepen reforms. The reforms carried out in taxes and customs, steps taken in connection with transparency yield its results. Customs and tax bodies have transferred over unscheduled 700 million AZN to the budget. It once again shows how much reserves we have. Currently, many companies do not fully pay taxes. They have fraudulent business practices. Employees are not registered in some companies. It is true in recent years, thousands of jobs have been registered, and thus, it has transferred from the "black" area to the "white" area. However, it should be widespread. Some private companies do not fully pay taxes till this day and keep double accounting”.

As seen, the state is assertive in the rehabilitation of the economy and considers the full realization of the potential existing in this field a strategic target. At the same time, the state protects the rights of entrepreneurs: “Those entrepreneurs must also know that paying taxes is their obligation. Nothing else can be demanded from them. I have set this task before all institutions; there must be maximum transparency, honesty; there must be put an end to bribery and corruption. However, entrepreneurs must fully pay taxes. Due to these taxes, we execute social projects, settle IDPs and strengthen our army. Therefore, those, who evade taxes, must face criminal charges”.

President Ilham Aliyev expressed his attitude towards this issue while receiving new Economy Minister Mikayil Jabbarov as well. The head of state noted that this year, the Ministry of Taxes has collected more than 350 million AZN, and this is the indicator of transparency. All this gives the state an opportunity to implement social projects, and we became witnesses of this when two big social packages were executed earlier this year.

“Naturally, this revenue has given us an opportunity to execute wide and serious social packages this year. I can say that this social initiative does not have an equal till this day. 4, 000 200 million people have benefited from this social initiative; the minimum salary has grown twice and minimum pension by 70 percent. We are in the first place in the CIS zone on the purchasing power; however, we are in the third place on the average pension level. Indeed, this is a big social initiative. Surely, if we did not have finances, we could not execute it”.

As seen, legal, institutional, structural and staff reforms are accompanied by content, importance and approach changes. All the changes are aimed at one target: the improvement of the welfare of Azerbaijani citizens.


Vusal Mammadov

Analytical Group