According to estimates from the Ministry of Finance, a quarter to a third of wages are in the gray zone in Russia today.

The share of the shadow economy in Russia in recent years hovers at around eight to 15 percent, the head of the Federal State Statistics Service, Alexander Surinov at a press conference on December 22, 2017.

“When we talk about the so-called non-observed economy, we estimate it as the difference between the GDP calculated with the production method and the GDP calculated with the expenditure method. This is the method of mirror statistics that takes into account the difference between income and expenditures. Within the past few years, that figures varies from eight to 15 percent,” the official said.

Surinov stressed that it is necessary to distinguish between the “non-observed economy” concept in general and “informal employment”.

“When we talk about the non-observed economy in line with the OECD guidance, it presents a few problem areas. One of the implications may be the illegal production of goods and services that cannot be produced and traded in the country. Second, non-observed economy engenders hidden production of goods and services. These producers would be hiding the real volumes of their production and not complying with Labor Code regulations. The third part is the informal economy, where households produce goods and services and deliver them to the market. The fourth component entails the production of goods that households consume for themselves, such as growing potatoes in the garden, doing building repairs, and harnessing the cultivation of cow’s milk for consumption. It all qualifies as consumption and accumulation,” the head of the Federal State Statistics Service said.

The Russian official said that nearly all countries have weak statistics in this area. “No observations, calculations, measurements, or evaluations exist. There are no reliable methods. If a country permits soft drugs, it is possible that the correlation coefficient of light and heavy drug consumption may be used to project the size of the shadow transactions in this segment, which would then become a part of the world economy. In those countries where drugs are illegal, it is difficult to estimate the market size. Hence, no such estimates are made in most countries. I know that our colleagues in Poland have tried to do something along these lines and our colleagues from Ukraine attempted to undertake measurements, but these efforts resulted in no reliable techniques. Therefore, when we talk about the non-observed economy, we estimate it as the difference between the production and the consumption of goods, which effectively becomes the byproduct of our labor that allows us to measure the size of the GDP,” Surinov said.

Deputy Finance Minister Vladimir Kolychev previously reported that the Finance Ministry has submitted to the government their proposals on tax reform. The report includes measures aimed at taking businesses out from the shadow part of the economy. According to Finance Ministry’s estimates, anywhere from a quarter to a third of wages in Russia today are in the gray zone. As stated by Finance Minister Anton Siluanov, the proposed measures will make it unprofitable for businesses to stay in the gray zone. According to Siluanov, digital technology will comprise the largest component of the measures aimed at curtailing the shadow economy. These will primarily include the use of a system for tracking goods and online checkout registers.

Proposals on tax reform are to be submitted to the Russian President by the end of the year. After the head of state approves the initiatives over the course of 2018, they will be incorporated into laws and will come into force from 2019.