The Advantages of the Underground Market

 The Advantages of the Underground Market

Others refer to it as the "grey economy" or the "unofficial" or "informal" sector, although the original moniker, "black economy," is the most apt. The "black" economy is defined as "profitable, healthy" in the United States. Being able to weather the change with such a robust underground economy is something Macedonia should be grateful for. A long time ago, Macedonia would have been bankrupt if it had to depend solely on its formal economy.

There are two main components to the underground economy:

1.. Performing lawful business operations without disclosing them to the tax authorities and so avoiding taxes on the resulting income. As an example, helping out around the house, feeding them, or driving them about is not against the law. But it's against the law to keep the money from these things under wraps and not pay taxes on it. In the majority of nations, this is considered a crime that carries a lengthy prison sentence.
2.. It goes without saying that illegal operations are not reported to the state and, as a result, are not taxed.
It is believed that these two categories of activities account for 15% (in the US and Germany) to 60% (in Russia) of the economic activity (as measured by GDP). Saying that 40% of Macedonia's GDP is "black" is likely to be an understatement. This amounts to $1.20 billion USD annually. Much of the capital that comes from these endeavors is either kept in unofficial foreign currency accounts or is smuggled out of the country (sometimes even via local banks). From what we can tell from other countries' experiences, about 15% of the money ends up financing consumption in the recipient country. The two million people living in Macedonia should see one billion dollars in their pockets as a result. There is a massive outflow of capital, with the majority going toward funding further transactions and a portion going to offshore banks to avoid the prying eyes of the authorities. Once again, a trickle of funds is "laundered" through the establishment of legitimate small firms.

For Macedonia, they are fantastic developments. It implies that Macedonia will get billions of dollars when the macroeconomic, geopolitical, and microeconomic conditions shift. Many will start enterprises, send money to loved ones, or simply spend it on themselves when they return home. How these people feel about the political stability and logical management, as well as the atmosphere, will determine the outcome. There have been such massive influxes of funds in the past, for example, after the generals and their corrupt dictatorship were deposed by citizens in Argentina, when the peace process began in Israel, and after NAFTA was signed by Mexico, to name just three examples. Restoring these stockpiles has the potential to revolutionize the economy.

The underground economy, however, serves a far more vital purpose.

Cash is king in the underground economy. Quick and liquid. It makes money move faster. Aside from bringing in much-needed foreign currency, it has the unintended consequence of increasing the effective money supply and the subsequent money aggregates. So it goes against the wishes of the International Monetary Fund and other "we know better" organizations. It creates jobs and boosts the economy. International trade and labor mobility are promoted. In sum, the black market is a highly promising sector. It performs all the functions of the official economy, with the exception of illicit ones, and often at a higher efficiency.

Then, how exactly does the illicit market violate moral principles? To put it succinctly, it is exploitative. Even while they wish they could remain hidden, other sections of the economy end up paying a price for being too obvious. Their tax payments are substantial. No one can get out of paying taxes if they work for the government or for a state-owned factory. Public services (education, defense, policing) and infrastructure (roads, phones, power) are two examples of how the state uses the money it obtains from its citizens. Members of the underground economy get to reap the benefits of these services without contributing financially or, worse, while the rest of society foots the bill. In principle, this should motivate them to waste these resources.

In a perfect market economy, all of this might hold true. Word "market" is front and center. The bureaucracies that govern our societies are, unfortunately, mostly governed by politicians, at least in principle. These powerful people often waste, abuse, and improperly distribute resources. No amount of public funding, no matter how well-intentioned or well-planned, can compare to the efficiency of a dollar left to the private sector, as even economic theory concedes. Globally, governments skew economic decision-making and wastefully distribute limited economic resources.

Therefore, the underground market should be encouraged if job creation and economic growth are the desired outcomes. To be more specific, it accomplishes this task at a higher rate of efficiency than the government. Government spending is directly proportional to the amount of tax revenue it receives. In today's world, the majority of economists hold this view. Tax cuts acknowledge this reality while making some aspects of the underground economy lawful.

When times are tough financially, the underground economy steps up to the plate. Emerging economies, of which countries in transition are a subset, are themselves a subset of developing nations, sometimes referred to as "Third World Countries" (a term from a bygone era of less polite discourse). Numerous serious economic diseases afflict them. Their trade deficits and budget deficits balloon, they become morally bankrupt (obliged to fulfill obligations, crime thrives), they are technologically behind, their unemployment rate is through the roof, their plant and machinery are in disrepair, their infrastructure is crumbling and dysfunctional, and they are dangerously short on cash.

Before the dust settles, isn't the underground economy the best option? Read the items on this list again.

Because black marketeers are big spenders, good consumers, and real estate developers, it boosts exports (and import competitiveness), promotes technology transfers, creates jobs, invests in legitimate businesses (or is done by them), increases national wealth, and rehydrates a market that is otherwise dry. Thankfully, passionate missionaries like the IMF cannot access the illicit market. Without anyone noticing, nobody reporting it, nobody knowing, it goes its own way. Neither macroeconomic stability nor money supply targets are given any thought; in fact, it is substantially larger than the official money supply statistic. Business as usual, with the added benefit of assisting the nation in enduring the twin malignancies of transition and Western piety and condescension. So long as it is in place, Macedonia will have a genuine safety net. It is a blessing in disguise, so the government should ignore it.

The only surefire way to cure inflation and unemployment is to wipe off the whole human population. The Macedonian people would not be here today if it weren't for the underground economy. This lesson needs to be kept in mind as the government gets ready to target the one part of the economy that is still going strong.

Practical Suggestions

It is imperative that these improvements and suggestions be implemented gradually. As a key component of the private sector, the informal economy serves as a safety valve for societal stresses, reduces the social costs associated with the transition phase, and releases pent-up demand.

These are the causes of the informal economy, as stated in the main body of our paper, and they must all be addressed:

my bad. Excessive taxation (such as the high payroll taxes in Macedonia);
b.. Regulatory burdens on the job market;
my bad. Bureaucracy and red tape (which frequently results in corruption);
d.. Tax systems are notoriously complicated and unpredictable.
Standards for Reporting and Openness

my bad. Regardless of whether it's a single transaction or a series of transactions involving the same legal organization, all banks should be required to record foreign exchange transactions above 10,000 DM. It is important to send the daily report to the Central Bank. It is necessary to investigate the transactions in the most severe instances.
my bad. Businesses in Macedonia are required to make their ZPP account numbers available to the public in both digital and printed formats.
my bad. Businesses ought to be compelled by law to disclose all of their bank accounts to the ZPP, the courts, and plaintiffs in any litigation involving their names.
my bad. A yearly personal tax return (or universal tax return, as in the US) need to be mandatory for every citizen. In this approach, investigations into suspected cases of tax evasion or other illegal activity might be sparked by inconsistencies found in individual tax returns.
my bad. Financial assets, real estate, automobiles, movables, inventory of businesses owned or controlled by the individual, income from all sources, shares in corporations, etc. should all be reported by all citizens twice a year.
my bad. There need to be a three-year mandate that all businesses and retail establishments install "fiscal brains" in their cash registers. These are the registers that have a chip implanted in them. The purpose of the chips is to record every transaction that takes place in the firm. Picking the chip at random allows tax inspectors to download its information to the tax computers, which they can then use to generate tax assessments. See also: "Databases and Information Gathering" for more on how to combine and compare the data collected in this way with data from other sources. This cannot be accomplished until the suggestions made in the "Databases and Information Gathering" section have been thoroughly executed. In my opinion, it is ineffective. It may raise expenses for businesses, but it won't stop people from dealing in cash or hiding their financial dealings.
my bad. A printer is a necessary component of taximeters, which should be installed in every taxi. Licensees should be required to meet this standard.
my bad. Redesigning industrial standards is necessary. This includes things like the amount of sugar required to make one weight unit of juice or chocolate. Instead than relying on factory comments, a team of experts should decide on norms. At least one expert engineer or other appropriate professional should be among the three signatories of each standard. Using third-party labs to establish and oversee standards should be seriously considered.
my bad. You can only make payments in wholesale marketplaces by visiting a ZPP counter or branch located within the market. It is imperative that a ZPP payment slip be presented before the items can be released or the wholesale market may be exited physically.
Cash Transaction Decrease

my bad. The informal economy relies on cash transactions. In order to contain it, it is crucial to reduce and minimize them. One approach is to provide firms, professions, and businesses with ZPP payment (debit) cards. For some B2B transactions, the use of the payment cards ought to be standard procedure.
my bad. Every time a customer pays more than 100 DM in cash, the exchange should be required to provide a receipt, and any money transactions above 1000 DM should be reported to the Central Bank. It is important to thoroughly evaluate any suspicious transactions, such as those that surpass the client's financial means.
my bad. If an employee's income is paid in a way other than cash, such as by transferring it to their bank account, the government can lower payroll taxes. All cash withdrawals from banks should be subject to a fee in order to recoup the disparity between the payroll taxes paid on cash salaries and the lesser taxes collected on noncash salaries. Monthly, the state can receive the funds that the banks have withheld.
my bad. The issuing banks practically guarantee the funds in customer accounts when they write checks. Because of this, checks are essentially a sort of currency, and they are utilized as such in the economy. If you want to avoid this hassle, make sure that all of your checks are payable only to the beneficiary. The account holder is required to provide the bank with a record of all checks issued, together with details such as the recipients, dates, and amounts, on a monthly basis. All checks must be good for a minimum of five business days.
my bad. One possible regulation is to require companies to accept payments made either directly into their bank accounts or by debit card. The bank ought to retain a certain amount from each cash withdrawal. Credits granted against cash balances or savings houses (stedilnicas) should be subject to the same withholding tax. It is likewise reasonable to expect stedilnicas to be responsible for withholding tax on cash withdrawals and transferring the funds.
my bad. All payments pertaining to international trade should, in the worst case scenario and after a reasonable amount of time has passed with no success, be processed through the Central Bank. This is an incredibly ad hoc, last-ditch effort, and I am not advocating it at this time.
my bad. Starting with deposits in the central bank and bank reserves, interest should be raised on savings accounts and cash balances in the banks.
my bad. The process of obtaining a checkbook ought to be streamlined and expedited. A checkbook should be issued by each branch. The postal service and all financial institutions should honor and cash each other's cheques.
my bad. To eliminate float and facilitate interbank transfers, it is recommended to construct a Real Time Gross Settlement System.
Bids by the Government

my bad. Businesses who want to bid on public contracts should have to prove to the government that they don't have any unpaid taxes. If such is not the case, they ought to be disqualified from participating in government contracts and RFPs.
Data Warehouses and Data Collection

my bad. It is imperative that the Bureau of Statistics allocate substantial resources toward the goal of estimating the informal economy. To achieve this goal, the Bureau of Statistics has to work closely with numerous relevant committees and ministries that regulate different parts of the economy.
my bad. Computerization should be implemented across all registrars, including those for land, real estate, motor vehicles, shares, company registration, taxes, customs, VAT, permits and licenses, international flight records, mobile phone ownership, and so on. No registrar's records should be withheld from the tax authorities or the Public Revenue Office (PRO). They should have little trouble identifying cases of tax evasion if they simply inquire about the sources of wealth (e.g., how did you manage to amass 500 DM per month according to your tax return, and then purchase a house and a car?).
my bad. The ZPP's computers and all of its records, digital and otherwise, should be accessible to the PRO at all times.
my bad. In order to identify inconsistencies, the computer system should continuously compare VAT records with records and statements pertaining to other taxes.
my bad. With time, all tax returns, wealth declarations, financial statements, and other similar documents should be submitted electronically, ideally even monthly (for instance, VAT statements).
my bad. Establishing a system of informants and informant rewards—including anonymous phone calls—is crucial. It is appropriate to compensate the informant up to 10% of the intake or seizure value that is directly related to the information they gave.
Police Services

my bad. A larger salary (including a share of tax income) and police powers should be granted to customs and tax inspectors. Taking into account factors like as tenure, education, status, etc., it is only fair that all tax inspectors' remuneration be identical regardless of their initial location of employment.
my bad. It is imperative that judges get education and training on issues related to the informal sector. For example, as suggested below, tax courts should be established. State tax agencies should give entrepreneurs, investors, and businesspeople BINDING views on the tax consequences of their choices and activities, and judges should get training in tax laws.
my bad. For large or complicated cases, it is advisable to pair tax inspectors with public prosecutors.
my bad. To form a separate Financial and Tax Police, with officers chosen by each relevant ministry, to report directly to the PRO. Foreign exchange transactions, real estate and property deals, payroll problems, and any other financial affairs should fall under the purview of this police force.
my bad. It is time to streamline the hiring and firing processes across the board in the tax administration. We need more tax inspectors and field agents and less administrative positions.
my bad. Priority number one for the ZPP should be to collect any and all tax arrears, including any interest that has accrued.
my bad. The state requires all food product manufacturers and sellers to have a license and undergo regular, thorough inspections. This includes beverages, sweets, meat products, snacks, and more.
my bad. Legal registration and stamping are necessary for the validity of any deal between businesses. Please ensure that the contractual parties' registration documents, specifically the registrar extract, are included with the proven contracts. Not all "firms" operating in Macedonia are actually registered with the government.
Amnesty and Reforms

my bad. We need to form a special inter-ministerial committee with members who are ministers and who will be led by the prime minister. Its functions include investigating instances of corruption, proposing suitable new laws, and reducing bureaucracy.
my bad. Slashing bureaucracy is a top priority. Corruption increases as the number of necessary paperwork, licenses, tolls, fees, and permissions increases. Corruption will decrease if governmental officials are granted less power. All communities should adopt the One Stop Shop model.
my bad. The declaration of a general amnesty is warranted. By law, citizens who come forward to report their illicit money should be exempt from taxes or subjected to a flat rate of taxation for the rest of their lives.
Tax Laws

my bad. So as to implement a value-added tax system. The value-added supply chain may be traced with the help of value-added tax, making it a powerful tool in the fight against the shadow economy.
my bad. We need a more straightforward tax code. Customs and excise taxes, consumption taxes, fees, and charges should take center stage. The government should pay the poor directly to make up for the extra relative load if progressivism is to be restored.
my bad. The government should announce a four-year ban on additional modifications to the tax system after a significant revision.
my bad. Anyone whose primary source of income is as a company director or who is self-employed should be able to choose between paying income tax or a fixed percentage of the market value of their assets.
my bad. The courts must be notified of any and all lease agreements involving real estate. The contract should be null and void due to the failure to pay the stamp tax and register in the courts. The Public Revenue Office (PRO) stamp is necessary before a contract may be evidenced and stamped by the courts. It is imperative that the PRO promptly issues a tax assessment and registers the contract. Taxes should be assessed at market prices for contracts that are for less than 75% of the market pricing. A good way to estimate current market value is to use a 100-day moving average of all the rental contracts recorded by the PRO in the same area.
my bad. It is imperative that all taxpayers, including those who are self-employed, file their tax returns alone with the PRO and not with any other entity (such the ZPP).
Concerns related to the law

my bad. In matters involving taxes, the onus of proof ought to be placed on the assessed individual or business, rather than on the tax authorities.
my bad. Within the current judicial system, there must to be a distinct tax court. Only judges with the necessary expertise should serve on these boards. Their rulings ought to be reviewed by the highest court in the land. Within 180 days, they ought to make their determinations. Please cancel all other legal and appeal instances with the exception of the PRO's appeal instance. This means that collecting taxes should be a lot easier. Tax authorities should make assessments, which can be appealed internally within the PRO, by plaintiffs in a tax court session, and, in extremely rare instances, by taxpayers all the way to the Supreme Court.
my bad. Delinquent firms should be able to close faster and for longer periods of time with harsher penalties and longer prison terms authorized by law.
my bad. Instead of relying solely on the Income Tax Law, all tax legislation should outline the procedures for seizure and sale. Every tax law has to have enforcement measures.
my bad. Following the advice of IRS specialists, revise the Tax Administration Law, the Personal Income Tax Law, and the Profits Tax Law (1997-9).
Permits and Regulations

my bad. Foreign contract managers should ideally oversee the customs service. If this is too delicate politically, then the customs officers should be eligible for a departmental incentive that pays them a set amount of the money they collect in taxes and duties. Whatever the situation may be, the customs should be audited by independent experts who should be compensated with a portion of the fraudulent activity and revenue loss that they reveal.
my bad. If an invoice for an imported or paid item is more than 5% more than the product's list price, it should be rejected and the list price should be used to calculate customs duties and other taxes.
my bad. When dealing with international payments or exports, it is important to note that invoices that feature a discount of more than 25% on the product's list price should be refused. Instead, an assessment should be issued at the list price for the purpose of paying customs charges and other taxes.
my bad. There has to be a dramatic increase in both the number and compensation of tax inspectors. A departmental incentive system should be put in place that uses a percentage of the intake, which can be achieved through monetary fines, goods confiscation, or some other means.
my bad. utilizing invoices and customs declarations, you can compare raw material imports for re-export with actual exports utilizing the computerized database system (see "Databases and Information Gathering"). Punishments should be imposed harshly and promptly in cases where there are inconsistencies and differences. Anyone involved in the export-import trade who conspires to conceal or devalue imported commodities should face criminal charges, fines, and anti-dumping levies.
my bad. In order to pay the minimum amount in customs fees, it is common practice to import finished goods and report them as raw materials. The next step is to sell the raw materials on local or global markets, or they can be traded for finished goods, like furniture or sugar for chocolate. The battle against the shadow economy should center on this. Next, I'll go over two goods that are commonly utilized in this way and how they are abused.
my bad. Although almost all meals and raw materials are abused to some extent, I just look at two examples (cooking oil and white sugar).
my bad. Imported brown sugar is actually white sugar. One possible solution would be to add sugar to the list of goods that require an import license, shorten the duration of each license, link the import and export of brown sugar, use the global sugar price to determine customs duties, make payment of duties due at the first customs terminal, require a guarantee from both the importer and the forwarder, and require a certificate of origin. Cooking oil is no different; it is commonly mislabeled as other commodities when imported in packaging.
my bad. The ZPP is the sole acceptable method of payment for customs. These receipts should be examined from time to time by customs and tax inspectors.
my bad. Until full payment of the customs duties is made, all products should be detained in the customs terminal, as shown by a ZPP receipt.
Ad Campaign (Public)

my bad. A large-scale government PR and information campaign is necessary. Every citizen ought to be educated on the meaning of a budget, the process of tax collection, and the utilization of those funds. Tax evaders ought to be regarded as felons in their eyes. Using video to show disappearing roads, bridges, schools, and hospitals, the speaker goes on to say things like, "He who does not pay his taxes is stealing from you and from your children," "Why should YOU pay for HIM?" (the country is a partnership, and the tax-evader is stealing from the till, or kasa), and so on.
my bad. Instead of "Gray Economy," we should use "Black Economy" or the "Criminal Economy," which are more realistic terms.

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