The article analyzes the threat of shadow economy in the Lithuanian market of agricultural and food products and assesses the impact of different tax policies on the trade volume flows and state budget. Shadow economy inevitably exists in each country but its nature depends on tax laws and other economic activity regulatory acts and changes along with them. The higher taxes and more regulation, the greater incentive is to grow shadow economy.
According to the Department of Statistics to the Government of the Republic of Lithuania, most unaccounted activity, in absolute terms, is in the wholesale and retail trade. The unaccounted activities of the Lithuanian trade in agricultural and food products include: cross-border shopping, (the activity in which private individuals buy agricultural and food products abroad because of lower taxes and import these products for their own consumption), shuttle trade (the activity in which individual entrepreneurs buy agricultural and food products abroad and import them for resale in market-places or small shops), cash and without bill settlements (sale of agricultural and food products in market-places).
Summing up the indicators of consumption, supply, price level of Lithuanian agricultural products, it was found that the greatest likelihood of shadow economy threats exists in the meat and fruit and vegetable sectors. These products prevail in market-places, which are one of the main shadow economy sectors in the retail trade. The majority of EU member states apply reduced VAT rates for agricultural and food products. This rate in size is close to rates in neighboring countries. In 2009, the situation in Lithuania was opposite - reduced VAT rates for certain agricultural and food products were withdrawn. As a result, market participants who pay taxes (retail trade enterprises and processing plants) gradually lost their domestic customers. Shadow economy business cut them out. The Polish zloty depreciation against the Lithuanian Litas and withdrawal of reduced VAT rate shifted the choice of Lithuanian customers. Low prices of Polish agricultural and food products stimulated Lithuanian people to go to the neighboring country and buy agricultural and food products for their own consumption, as well as to engage in shuttle trade when the Polish agricultural and food products were imported for resale in market-places. Due to the different tax policy, taxing the consumer for VAT in the same market, individual market participants have unequal conditions of the competition: retail trade enterprises apply 21 percent VAT rate for agricultural and food products and market-places apply 0 percent VAT rate. Market-places are trading area where taxes, compared to retail trade enterprises, are almost a fifth lower and prices are lower about 10 percent. Market-place traders pay very small municipality taxes and mainly resell agricultural products. After carrying out the survey of the market-place traders in Vilnius, it turned out that the dealers accounted for about one-third of all market-place traders and dealers of meat accounted about two-third. The official statistics do not receive information about the turnover of market-place traders. This sector is one of the main officially unaccounted sectors.
After carrying out the research in the market-places in Vilnius, Kaunas, Klaipėda, Šiauliai and Panevėžys, it was found that the average annual turnover of one market-place trader who sold fresh meat and meat products exceeded 100 thousand Litas, the threshold for becoming VAT payer. Each year the Lithuanian budget loses around 30 million Litas solely from the trade in meat in the market-places. This money falls into the pockets of market-place dealers.
Keyword(s): trade in market-place, shadow economy, VAT rates.
Albertas Gapšys, Ovidija Eičaitė. Šešėlinės ekonomikos žemės ūkio ir maisto produktų rinkoje įtaka šalies biudžetui // Vadybos mokslas ir studijos - kaimo verslų ir jų infrastruktūros plėtrai = Management theory and studies for rural business and infrastructure development / Lietuvos žemės ūkio universitetas. Ekonomikos ir vadybos fakultetas. Akademija, 2010, nr. 20(1), p. 15-24, ISSN 1822-6760 (EBSCO, Business Source Complete, Central & Eastern European Academic Source).
Publication: The impact of shadow economy in the market of agricultural and food products on state budget (In Lithuanian language)