Russia's shadow economy

Shadow economy

Main article: Shadow economy

2023: The volume of the Russian market for illegal products reached 5 trillion rubles

In 2023, the volume of illegal goods in the Russian retail market amounted to 4.9 trillion rubles, or 10.1% of the entire retail market. This figure is five times higher than the global average. This was reported in a study by RBC, published in early June 2024.

According to the report, the share of illegal products in Russia over the past four years has grown by 58% in current prices - from 3.1 trillion rubles in 2020 to almost 5 trillion rubles in 2023. The reasons for this growth were Western sanctions, the legalization of parallel imports, rising inflation, a moratorium on business inspections and the development of Internet marketplaces.

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Illegal products have low quality and can be unsafe for health, especially when it comes to medicines, children's products, food, alcohol and tobacco. In addition, illegal products not only deprive the economy of taxes and interfere with healthy competition, but are often unsafe for consumers, analysts warn. RBC

The industries most affected by illegal trafficking were the fashion industry, cosmetics, perfumes, tobacco and nicotine-containing products, where the share of counterfeit goods reaches 17%.

RBC stressed that in monetary terms the main blow falls on the tobacco industry: budget losses from lost excise taxes are estimated at 123.7 billion rubles. In addition, due to illegal turnover, the federal budget received less than 976.9 billion rubles in value added tax (about 13.6% of total VAT revenues).

According to the survey, 36% of Russians have encountered illegal products in recent years. The main channels of its sales are markets and fairs (54%), marketplaces (36.9%) and online stores (32.2%).^[1]

2022: The share of unofficial income in Russia over 9 years decreased from 37% to 10%

The share of unofficial income in Russia over 9 years decreased from 37% to 10%. This is stated in a study published in the journal Rosstat on June 5, 2024. According to the study, the share of unofficial income of Russian families over the past nine years has decreased. If in 2015 this figure was 37%, then by 2022 it had dropped to a record low of 10%.

The reduction in the share of hidden income, including salaries "in envelopes," informal employment and shadow earnings, occurred gradually, with an average annual decrease of 2.3%. Rosstat experts attribute these changes to several key factors. First, reducing poverty and social inequality played an important role, prompting many citizens to legalize their incomes. Secondly, the tightening of state control over compliance with tax laws has become a serious obstacle to the shadow economy.

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The share of hidden income is decreasing, since with the development of financial technologies and effective digital tax administration, it has become more difficult for employees to pay salaries "in an envelope," said Antonina Levashenko, head of the Russia-OECD Center for the Presidential Academy.

She added that the development of the institution of self-employment also significantly affected the decline in the level of shadow income. The introduction of the self-employment regime allowed about 10 million people to legalize their income on simplified terms. This regime allows novice entrepreneurs to pay taxes in the amount of 4-6% of the income received, without resorting to registering a legal entity or individual entrepreneur.

Olga Panina, head of the Department of Public Administration at Financial University, believes that the increase in financial literacy of the population is another factor contributing to a decrease in the share of unofficial income. Citizens began to better understand the economic and legal consequences of concealing funds, as well as the benefits of official employment, such as the accumulation of pension points and the possibility of issuing tax deductions.

According to a Rosstat study, despite significant success in legalizing income, about 19% or 14.2 million workers in Russia are still employed in the informal sector without official employment. Fines for illegal employment can reach 200 thousand rubles, which is often a weighty argument for employers to comply with the laws and formalize employees.^[2]

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