The Minister of Finance Sven Sester replied to the interpellation concerning the growing shadow economy and the attitude towards “envelope wages” (No. 232), submitted by members of the Riigikogu Andres Ammas, Andres Herkel, Külliki Kübarsepp, Monika Haukanõmm, Artur Talvik and Krista Aru on 8 June.
he interpellators referred to two recent studies on shadow economy which show that, in the opinion of companies, the proportion of shadow economy grew in Estonia last year, and the proportion of residents who favour payment of “envelope wages” increased. According to a study by the Estonian Institute of Economic Research, every tenth employee received “an envelope wage” in 2015. Mostly this is connected with the field of construction. The interpellators also referred to the position that, in the case of a low wage, the favouring of “envelope wage” may be motivated by a hope for tax refund.
Sester noted that, to estimate the volume of outstanding taxes, the tax gap is measured. There is no data as yet for 2015 because it will come from the methodology of calculating the tax gap and the base data deriving from it. It will be completed in October this year. “However, we are looking at the latest facts. In 2014, the tax gap was 411.8 million euro. A year earlier, it was bigger by 100 million euro – 514.4 million euro,” Sester said.
The Minister of Finance explained that the aim of refunding income tax is to reduce the tax burden of low-salaried people, and therefore a part or all of the income tax paid is refunded to them. “We are doing it to make low-salaried jobs more profitable and to reduce poverty. It promotes both working and entering the labour market,” Sester said. He said that it is not reasonable that people who earn minimum wage or only a little over minimum wage and live in poverty risk still have to pay hundreds of euro of income tax in a year from this scarce income. The Minister stressed that this means a reduction of tax burden which in the end allows people who work for low wages to keep more income earned. At the same time, the formula for refund ensures that it is always more profitable for people to earn more income.
Sester pointed out that, as it is precisely targeted refunding, it is several times more efficient than raising the basic exemption from income for all taxpayers. Differently from a raising of the minimum wage, the refunding does not increase the tax burden or costs for undertakings but increases the income that people who work for low wages can keep.
“As to the monitoring, then already at the beginning of this year the Tax and Customs Board started the development of the working processes and information systems for the annual refund to low-income working persons. So refunds will be effected and monitored,” the Minister said. He explained that the Tax and Customs Board plans monitoring activities depending on the fiscal impact of fraud. In the case of the refund to the low-salaried, the risk of an unjustified refund is mostly connected with a situation where “envelope wages” have been paid to workers. “So the monitoring of the refunding to the low-waged is largely covered by the monitoring of “envelope wages”. If the Tax and Customs Board becomes aware of the circumstances that an additional refund is unjustified for a reason other than receiving “an envelope wage” then ordinary administrative proceedings are initiated,” Sester said.
During the open microphone, Heimar Lenk, Toomas Vitsut and Peeter Ernits took the floor.
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