Analytics, Latvia, Legislation, Markets and Companies, Shadow economy

"In retail trade, unfair competition is felt especially strongly, because shadow economy affects competition for clients, pricing and staff hiring. By offering some EUR 20 more, tax avoiding entrepreneurs lure employees from companies that pay much lower but legal wages. Distrust in the state and pension system makes people easy targets – they choose the best short-term offer, but lose out in the long run," Kruzitis said.

According to the latest study on the Baltic States' shadow economies conducted by the Stockholm School of Economics (SSE) in Riga, the shadow economy accounts for 24.6% of Latvia's retail sector, which is the second highest figure after Latvia's construction sector.

Research done by the Latvian Food Retailers' Association shows that unreported wages in retail trade can be paid in two ways – by reporting wages for part-time work although the employees work full time, or by declaring a smaller hourly pay and paying out the rest of the wage in envelopes.

A comparison of hourly pay data from the State Revenue Service shows that members of the retailer's association like Rimi Latvija, Narvesen Baltija and Maxima Latvija pay much higher hourly wages to their employees than retailers that are not members of the association, which suggests of attempts to artificially reduce the declared wages, Kruzitis said.

Smuggling of excised and some other goods, like vegetables, is also harming the retail sector, he said.

As reported, Latvia's shadow economy decreased by 2.2 percentage points last year to 21.3% of GDP. In Lithuania, the shadow economy grew by 2.5 percentage points to 15% and Estonia's shadow economy expanded to 14.9% of GDP.