Analytics, Financial Services, Latvia, Legislation, Markets and Companies, Wages

Among payers of microenerprise tax, the share of unreported wages was 28 percent, down 3.2 percentage points from 2015.

In monetary terms, roughly EUR 940 million were paid out in unreported wages to employees paying standard taxes and unreported wages paid out to payers of microenterprise tax reached approximately EUR 17 million, Filipovica said, adding that these figures did not include around EUR 438 million in undeclared social security contributions and EUR 223 million in undeclared personal income tax.

The Revenue Service's official said that around 200,000 employees in Latvia are paid unreported wages, with the share of the unreported money typically making up 20-50 percent of their total remuneration, or 30 percent on average.

Among businesses paying standard taxes, under-the-table wages were most commonplace in trade and construction, and the ICT sector was the leader among payers of microenerprise tax.

According to the Revenue Service's data, unreported wages make up 26 percent in construction of buildings, 30.7 percent in specialized construction works, 31.9 percent in real estate transactions, 23.8 percent in retail trade, 29 percent in wholesale and retail trade in automobiles and motorcycles and 27.9 percent in land transport.

Professions with the highest unreported salary risk included management board member (24,138 employees), shop assistant (16,663), truck driver (13,905) and management board chairperson (7,868).

Filipovica said it was a myth that all entrepreneurs preferred paying wages under the table. The risk of unreported payments was detected for 25 percent of jobs paying standard taxes and 19 percent of jobs paying microenerprise tax.

The Revenue Service's research suggests that employees of the pre-retirement age are most likely to receive unreported wages. Filipovica noted that those who receive their wages under the table do not live better than those who receive their wages legally.

"Only around 25 percent of those who receive unreported wages benefit from this. They are company executives. Other employees who receive under-the-table wages do not live better than others and put their old-age at risk," said Filipovica.

The Revenue Service's deputy head Dace Peleka said that the Revenue Service has been drawing up analytical reviews since 2013 and that strengthening its analytical capacity is one of the service's priorities, enabling to enhance prevention.

"Previously, we used macroeconomic methods to calculate the tax gap, but now these calculations include profiling by companies and industries to figure out which companies do not pay their taxes and what could be done to encourage them to pay the taxes," Peleka said.