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Shadow Economy Makes 39% of GDP in Kyrgyzstan

Thursday 20 December 2012

Bishkek (24.kg news agency) – “In Kyrgyzstan, shadow economy rate reaches 39% of GDP,” the head of Investment Round Table NGO, Rafkat Khasanov, said today presenting the results of 5 month inquiry.

At least 875 forms were filled up during the inquiry. 536 of them were from individual entrepreneurs and 339 from legal entities. “Many businessmen refused to fill up the form, almost all large companies of Bishkek refused to participate in the research,” Rafkat Khasanov noted. He told in 2005 he managed to collect 40 forms under his personal guarantee of safety and confidentiality of information. But this year he had only 20.

The shadow economy includes those economic activities and the income derived thereof that circumvent or avoid government regulation or taxation. The major component (about two thirds) is undeclared work, which refers to the wages that workers and business don’t declare to avoid taxes or documentation. The rest is represented by business underreporting profits to avoid tax regulation.

“During a pilot research we saw the businessmen understate the numbers greatly. That is why we included a logical filter in the questionnaire: except for a direct question of whether the company is in the shade, there were another 23 questions that allowed determining whether the respondent was honest answering this question,” Rafkat Khasanov said.

The filter revealed other 36% of those refused to give an official rate of bank profits, and those who said that they concealed wages and lowered VAT, can be added to 9.2% of respondents who admitted they worked in shadow.

“As a result only 10-13% of companies respect the law,” he concluded.

The fact that undeclared work is not observed or registered and it may be defined differently in national legislation makes it difficult to obtain reliable estimates of how widespread it is. Caution has to be taken when using indirect methods as there is wide agreement among experts that they over-estimate undeclared work and measure the whole shadow economy.

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