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Booming black economy killing small business

Dramatic increase in black economy is costing the State €5 billion, says the Irish Small & Medium Enterprises Association.

Illegal cigarettes seized at Dublin Port in May
Illegal cigarettes seized at Dublin Port in May
Image: Mark Stedman/Photocall Ireland

THE IRISH SMALL & Medium Enterprises Association (ISME) has warned that rogue traders, cash only merchants and racketeers are ‘killing’ tax compliant small businesses and costing the state billions in unpaid taxes.

According to ISME Chief Executive Mark Fielding, the amount of taxes being lost is conservatively estimated at €5 billion, with the cost on the economy at least 14 per cent of GDP.

“The ‘nixer’ culture, in particular, is very much alive and well and there has been a definite shift towards a ‘cash only’ shadow economy” said Fielding. “This is particularly evident in the construction and maintenance sectors, where there are increased incidences of ‘jobs for cash’, completely undercutting legitimate companies, who in many instances report that potential clients are demanding that they pay ‘off the books’ to save VAT.”

Fielding also claimed that because the social welfare system is not designed to make it easy to receive payments and take irregular temporary work, people ended up signing on and also working when they can, leading to millions in illegitimate dole claims.

“With rising costs and taxes, there’s also an incentive not to work, or to work but avoid tax. The system itself therefore offers a significant incentive to operate within the shadow economy, encouraging undisclosed employment without taxes or regulations, while claiming assistance from the state.”

Italians are now paying one of the highest ‘real tax rates’ in Europe because of their black market, according to a study alst week by the Italian consumer association, Confcommercio. Italy’s black economy amounts to 17.5 percent gross domestic product, driving up the ‘real’ taxation rate to 55 percent, far higher than the 45.2 percent rate cited by official figures. After Italy, Denmark had the second highest real tax burden at 48.6 percent, followed by France (48.2 percent) and Sweden (48 percent), the report said.

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