Latvia’s shadow economy currently stands at 26% of GDP, according to the Stockholm School of Economics in Rīga’s Sustainability Business Center.
The share of the shadow economy in Latvia and also in Estonia has been on the rise since 2016, with a slight exception in 2019, with unaccounted-for cash payments representing 46.7% of the total shadow economy in Latvia and 44.5% in Estonia in 2022. Non-reported revenue in Latvia accounted for 29% of the total shadow economy in 2022, while the non-reported employee component represented 24.3%. The highest share of unaccounted cash flow among sectors in construction, with a share of 30.5% in retail sales, 28.6% in the service sector, 23.9% in manufacturing, and 20.5% in wholesale trade.
The „SSE Riga” study „Shadow Economy Index in the Baltic States” is drawn up once a year, and is estimated using surveys of economic operators in the Baltic States.
The Minister of Finance, Arvils Ašeradens, has proposed reducing the circulation of cash, paying for work only electronically, and introducing a general income declaration requirement. He also allowed for the option to limit the amount of cash residents can withdraw and deposit using ATMs. He said that tax solutions have to be adapted to this reality, and that this will lead to businesses closing and sectors shrinking and becoming more efficient. The director of the state revenue service, Ieva Jaunzeme, stressed that businesses with insufficient productivity will be unable to pay taxes in a situation with high competition.
Andris Kulbergs, an MP in the Latvian Saeima, said that the volume of the grey economy is at €2.8bn and that he is “against increasing any taxes as long as money doesn’t come from this enormous grey economy elephant.”
