Hundreds of billions: Experts estimate the budget losses caused by the shadow economy.

Among the schemes of shadow economic activity in Ukraine, the main culprits are cash-in-hand salary payments, gray imports, smuggling, and the use of private entrepreneurs (FOPs) by employers instead of hired workers.

This is evidenced by the findings of a study presented during the economic forum "Dialogue of Civil Society, Business, and Government: Inclusive Institutions and Economic Freedoms," held in Kyiv on October 18. RBK-Ukraine acted as the information partner of the Forum.

The research on the largest schemes of the shadow economy and their impact on the state budget of Ukraine was conducted by several analytical centers, including CASE-Ukraine, the Economic Expert Platform, and ICET.

What causes the most losses to the Ukrainian budget

Among the shadow schemes operating in the Ukrainian economy, cash-in-hand salary payments lead in terms of negative impact on state budget revenues, causing a loss of 115-230 billion UAH per year.

Significant damage to the budget is also caused by so-called "gray" imports and smuggling, amounting to approximately 120-167 billion UAH.

The potential losses to the budget from the use of so-called conversion and/or transit centers, tax pits, miscoding, and drops reach 30-60 billion UAH annually.

Using FOPs of the third group instead of full wage payments for hired workers results in budget losses of about 4-10 billion UAH per year.

Additionally, due to the underreporting of FOP turnover, the state loses 7.5-12 billion UAH in taxes annually.

Positive shifts in the de-shadowing of the economy

According to the study, over the year since the last similar research, budget losses from counterfeit sales and illegal trade schemes have significantly decreased from last year's 46-51 billion UAH to the current 35-40 billion UAH.

The volumes of illegal capital flight abroad are at a historically low level, with potential budget losses amounting to 9-11 billion UAH per year.

There is a decrease in budget losses from the formation of fraudulent tax credits (so-called "carousel fraud") – from 16-20 billion UAH a year ago to 15-18 billion UAH.

"Structural changes, legislative amendments, war, and the economic crisis have led to an increase in the abuse of certain schemes, particularly cash-in-hand salary payments, violations of customs regulations, smuggling, and corruption at the border. At the same time, we observe a decrease in abuses using other schemes – primarily offshore schemes and BEPS, VAT fraud, and schemes in the agricultural sector," summarized Oleg Hetman, coordinator of expert groups at the Economic Expert Platform and associate expert at CASE Ukraine, for RBK-Ukraine.

According to the authors' conclusions, a general recommendation for further reforms in Ukraine is to continue and complete the judicial reform, reboot the Bureau of Economic Security, and implement institutional reforms in the Customs and Tax Services.

It is worth noting that significant above-plan tax revenues into the state budget for 2024 have become possible due to the de-shadowing of the economy. This was stated by the head of the parliamentary committee on finance, tax, and customs policy, Danilo Hetmancev in an interview with RBK-Ukraine.

According to the Member of Parliament, de-shadowing is an unreliable source of budget revenue. Therefore, de-shadowing can never be used as a guaranteed source of budget replenishment, reflected by a specific figure as "income from de-shadowing."

At the same time, the approximately 100 billion UAH accounted for by the Ministry of Finance in the changes to the 2024 budget is primarily the result of exceeding the revenue targets set by the Tax and Customs services since the beginning of the year due to de-shadowing, claims Hetmancev.