Almost 40 Per Cent Of Ukraine Economy In Shadow

KIEV, Ukraine -- Almost 40 per cent of Ukraine's entire economy operates off the books on the black market, according to a government report made public on Monday.

The precise size of Ukraine's shadow economy - 39 per cent - was a dramatic jump over a 2006 estimate of 27 per cent, the Ministry of Economy report said.

Part of the increase was due to a change in how the statistic was calculated, Korrespondent magazine said.

A staggering 227 billion dollars of Ukrainian economic activity this year will never be recorded on official company books or subject to taxation, because of the public's still-massive unwillingness to declare income, the 2007 report estimated.

The most widespread means of corporate tax dodging, the study found, is payment of salaries in two parts: a small amount declared to the government, and a more substantial portion given employees under the table.

The dodge is common in Ukraine, partly because tax inspectors enjoy a wide degree of autonomy in enforcing tax law.

A strict Ukrainian tax inspector is capable of making unprofitable almost any business simply by obliging it to pay, in full, all labour and social service taxes, which are benchmarked to the size of staff salaries.

Off-the-books payment of salaries in cash is routine in practically all medium and large business, particularly in Ukraine's industrial east, where as much as 75 per cent of all business activity is conducted off the books, according to the report.

The average personal salary in Ukraine once under-the-table payments are taken into account is approximately 800 dollars a month - almost triple the current official figure of 260 dollars, the government estimated.

Industries earning the lion's share of their income in the shadow economy include agriculture (72 per cent) and construction (71 per cent), the report said.

Salary payments off-the-books are highest in agriculture (4.4 times the amount reported to the government), heavy industry (3.9 times more), and construction (2.5 times), according to the report.

The most law-abiding sector of the Ukrainian economy was services, where some 18 per cent of transactions were in the black market, and almost 45 per cent of salaries were paid on the books, the survey found.