The Shadow Labor Market - Why is it a Problem and How to Address It?
This course was delivered as part of the Tax Policy and Administration Learning Program, primarily supported by the Dutch Ministry of Finance, International Monetary Fund, the Ministry of Finance of Slovenia and Slovenia's Development Cooperation. The overall objective of the program is to contribute to strengthening of beneficiary institutions’ capacity in implementing the EU recommendations under which the revenue authorities can deliver tax compliance risk management.
ABOUT THIS LEARNING EVENT
What you have learned
A large share of the shadow economy is undeclared work which refers to the wages that workers and businesses do not declare to avoid taxes or labor market regulation. The course looked into factors that have contributed to concerns over a growing scope for undeclared work and discussed measures that can be at the tax administration level pursued to reduce the size and growth of the undeclared economy. Experience across SEE and beyond shows that while a deterrence approach, which seeks to increase the actual or perceived likelihood of detection and penalties, remains the dominant approach when tackling the undeclared work, many tax administrations in close co-operation with other relevant government bodies have begun to take more preventive measures that include communication and raising public awareness campaigns along with simplification of administrative procedures, enabling easier and proper fulfillment of legally prescribed tax obligations.
This course has addressed the main causes behind shadow labor market. It has described taxonomy of types of underground economic activities, sought answers with regards to what extent the shadow labor market was an issue of high tax burdens, intensity of regulation, complexity of the tax system, and other driving forces of this phenomenon. The course has also addressed the question of how tax administrations can limit significant losses through unreported income. Discussions have focused on what actions the tax administrations can take to tackle the shadow labor market and in particular how to influence the tax morale.
Tax officials were invited to share their administrations’ efforts in combating undeclared employment in sector specific areas such as construction, tourism and similar.
How you have benefited
This learning initiative included a combination of presentations by subject-matter experts, as well as group work activities and individual presentations, followed by answer and question sessions.
Participants were encouraged to share information on national strategies for fighting the shadow labor market, with a particular focus on improving tax compliance. An important feature of this event was the valuable exchange of experiences of tax authorities across SEE supported with examples of efficient practices.
By the end of the course, participants have learned about:
- What fuels the shadow labor market and what motivates people to engage in it
- The correlation between shadow labor market and the degree of economic recovery
- The importance and means of communication between citizens and governments
- The necessity of raising understanding of the role played by taxes in achieving social objectives, as well as about different indirect positive/motivational measures to confine the scope of the shadow labor market
- Other structural incentives within tax system, income-dependent social benefits, labor market, link between contributions and benefits, and other.
Participants have gained new insights into the range of compliance and investigative strategies that countries can adopt in their attempts to fight against shadow labor market and learned by exchange of experiences from other countries.
The course has been designed for mid to senior level tax officials from the Risk Management, Audit, Criminal Tax Investigation, Analytics, Anti-Fraud or Tax Police Department and the representatives of Tax Policy divisions in the Ministry of Finance who are involved and/or have experience with the fighting the shadow economy. Participants took an active part in the workshop activities.
Henk Ruitenbeek, Tax and Customs Administration, Ministry of Finance, Netherlands
Henk works at the Tax Administration of the Netherlands as a national project manager for the shadow constructions on the labor market and for the employment agencies. He is an expert in staffing industry, contracting, payroll and other relevant labor issues. Henk is specialized in various taxation fields, such as compliance risk management (including horizontal monitoring), intelligence, external cooperation and fiscal aspects.
Chris Barlow, Resident Revenue Administration Advisor - Serbia, International Monetary Fund
Chris has been a resident revenue administration advisor with the IMF, based in Belgrade since November 2015. He was previously a senior assistant commissioner with the Australian Taxation Office (ATO). During his career with the ATO he held various senior leadership positions in compliance management, dealing with cash economy, VAT refund fraud, serious non-compliance and international tax fraud. He has extensive experience working with cross-government taskforces and multi-disciplinary teams. Chris also worked for the OECD in 2015–2017 where he was head of the Harmful Tax Practices unit. He is a qualified accountant and CPA.
Line Wilberg, Head of section, Regional department - Methodology section, the Norwegian Tax Administration
Line is the head of the methodology section in the Norwegian Directorate of Taxes, responsible for the agency's commitment to labor market crime. She has also led Norway’s work in the OECD with regard to the OECD FTA shadow economy work stream.
Marianne Dyba Gansmo, Senior Adviser, Regional department - Methodology section, the Norwegian Tax Administration
Marianne is a senior advisor in the methodology section in the Norwegian Directorate of Taxes. She has been working for the Norwegian Tax Administration and the Norwegian National Authority for Investigation and Prosecution of Economic and Environmental Crime (ØKOKRIM) for the last 29 years. Some of her main tasks have been in the scope of detecting and preventing VAT fraud, tax evasion, shadow economy, labor market crime, money laundering and accordingly fighting these crimes.
Fiona Dillon, Minister- Counsellor (Taxation) in the Australian Delegation to the OECD, the Australian Taxation Office
Fiona is an assistant commissioner in the Australian Taxation Office (ATO), currently serving as Minister-Counsellor (Taxation) in the Australian delegation to the OECD based in Paris. In her role there she chairs the Joint International Taskforce on Information Sharing and Collaboration (JITSIC) on behalf of the Australian Commissioner of Taxation and represents Australia in other OECD taxation initiatives.
Fiona has a long history of senior tax leadership roles in both the Australian public service and the private sector, including stints acting as the ATO’s Deputy Chief Tax Counsel. In her role as assistant commissioner in the ATO’s Tax Counsel Network, Fiona made significant impact in shaping the strategic direction of the ATO’s Public Advice and Guidance, was a longstanding member of the ATO’s Public Ruling Panel, a member of the ATO’s General anti-avoidance rule Panel and the ATO’s technical lead on a range of advice, litigation, reform and law design matters across a number of specializations including trusts. She previously held a senior tax manager position at Pitches Partners, providing specialist advice on international tax issues, taxation of financial arrangements (TOFA) and foreign exchange (forex) gains and losses.
Michael Strong, Senior Director, Small Business, the Australian Taxation Office
Rade Šević, Acting Assistant Director General — Transformation Directorate, the Serbian Tax Administration
Rade is a graduated economist at the Faculty of Economics in Belgrade, marketing expert, banking officer, a licensed bankruptcy administrator and a liquidation manager. He started professional activities in one of the largest banks in ex-Yugoslavia Investbanka, continued with five years of media planning and buying in the marketing agency S Team Bates Saatchi & Saatchi. In 2002 he joined the Privatization Agency of the Republic of Serbia as director of the Communications Center. From 2007 to 2015 he was in marketing and consulting management business, engaged in a number of marketing and business plans, including acquisitions and restructuring.
In the period from 2009 to 2011, Rade worked as the director of the Corporate Communications Department in Hypo Alpe-Adria-Bank a.d. White City. At the end of 2011, after five years of work in the Privatization Agency on active promotion of the 2005 Bankruptcy Procedure Act, he acquired a license for bankruptcy administrator. In March 2015, he joined Mrs. Dragana Marković’s successful team of assistant directors of the Tax administration of the Republic of Serbia, first as an advisor and later as an acting assistant director of the Transformation Directorate.
No fee was charged for officials working in the public sector and meals and refreshments were provided during the event. The workshop was held in English.
The costs of travel and accommodation for two participants from Armenia, Bosnia and Herzegovina, Bulgaria, Croatia, Georgia, Macedonia, Moldova, Mongolia, Montenegro, Romania, and Ukraine were covered by the Ministry of Finance of the Netherlands.
Additional participants from the above mentioned eleven countries or those applying from other CEF constituency (Albania, Kosovo, Serbia) were sponsored by other sources, e.g. their sending or sponsoring institutions.
Selected applicants were approved and notified by the CEF.
- Shining Light on the Shadow Economy: Opportunities and Threats, OECD, September 2018
- The Shadow Economy and Shadow Labor Force: A Survey of Recent Developments, Friedrich Schneider, IZA DP No. 8278, June 2014
- Revenue Administration: Managing the Shadow Economy, Barrie Russell, Fiscal Affairs Department, International Monetary Fund, June 2010
- Hiding in the Shadows, The Growth of the Underground Economy, Friedrich Schneider with Dominik Enste, © 2002 International Monetary Fund
- Shadow Work, Ivan Ilic, Philosophica 26
- Gray Economy in Bosnia and Herzegovina, Nedžad Haračić, Samira Tanović, Tax Administration of the Federation of Bosnia and Herzegovina
This learning initiative was supported by: