Economy colored in grey grows faster, especially in countries like Bulgaria. The companies can not only be “grey” or “white, because a shadow component can be found in each business. The truth is that the grey (shadow) segment in a certain company grows faster than the legal one. The same thing refers to all world countries-there is not even a single economy where the grey sector is close to zero. Thus, we reach the postulate which reads that free competition is like going to Paradise, everyone wants to go there, yet as late as possible.

Each country would like to have a small share of shadow economy, where business declares the whole turnover, all its profits and pays all taxes due. The problem is that in Bulgaria, most of the companies are small, uncompetitive, have small turnovers and their business can not be tracked easily. Some of the companies function without declaring all its produce. Thus, they save on various expenditures and taxes. Why companies always grow faster if they operate in the shadow economy?

“A dairy farm for example, buys 20 tons of fresh milk a day, but declares in its official documentation only 10 tons of milk. It makes 2 tons of yellow cheese out of all 20 tons of fresh milk, but declares that it produces only 1 ton of yellow cheese. The company sells the other half of the product without invoices and does not declare this produce anywhere else”, financial expert Emil Harsev explains the mechanism in the grey economy. All expenditures for wages, electricity bills, etc, are calculated based on the first one ton of produce, which was officially registered. Thus, the company gains a huge net profit from the undeclared part of the produce (the second half of the yellow cheese amounting to 1 ton). If the company’s net profit is 4% for instance from the registered produce, then it would turn out that the one made in the grey segment is 40% or so. This is the whole deal!”, says Emil Harsev.

In those cases the companies register higher profits, because they manage to sell their produce without paying taxes. They put the money meant for the state budget in their own pockets. How does the state benefit from the grey economy?

“The only meaningful advantage is that people engaged in grey economy earn money and manage to survive”, says financial expert Emil Harsev. “However, if the state could do a magic and destroy the whole grey economy at once, or make it legal, we would probably register a 5% higher gross domestic product. However, the unemployment rate in this country would be twice higher than the current one. Of course, much more people would be starving in that case”, contends Emil Harsev. 

Economy has its own rules. It is beyond any doubt that some of the companies operating in the grey sector would vanish if they are forced to pay taxes. However, many of those companies would simply shut down if they are somehow made to choose whether to become legal or close doors.

Bulgaria is currently far from the countries with highest rates of shadow economy. The share of the grey economy is highest in Georgia and Peru- nearly 65%. In Europe, the further we move south, the bigger the share of the grey economy. Even Germany has registered a substantial increase of its grey economy. The shadow economy in Italy is bigger than the one in Germany- nearly 30%. Bulgaria places slightly above Italy. The shadow economy in Bulgaria is similar to the one in Greece and Romania. That is why Brussels is strongly criticizing Bulgaria about the high level of its grey economy.

“The EU needs to criticize someone. It always needs to pick “a punching bag”, says Emil Harsev. “This is especially relevant now, when the country’s budget faces serious problems and the state fails to collect taxes from the grey economy. Some 30% of the whole potential added value sinks into the grey economy. People are right to think that shadow economy creates unfair competition and distorts the market”, concludes Emil Harsev.

Thus, however, the local small producers resists to the imports from the EU. Why buy an imported yellow cheese from the Netherlands for instance with calculated VAT in its price, if we can buy a local one, made from an elderly woman. Of course, the Dutchmen would not like it at all, because their companies also have access to our wallets.

English version: Kostadin Atanasov