Spain's Black Economy - 20% GDP

The value of Spain's underground economy shot up in 2008 but has stabilized at about 20 percent of GDP since 2010, the country's Foundation for Financial Studies (FEF) said on Sunday.

That figure is higher than everywhere else in the European Union except Italy, where the figure is 21 percent, the private research body said.

In Germany, the so-called 'black' economy is valued at 13 percent of GDP, while it is a far lower 10 percent in both France and the United Kingdom.

In terms of Spanish industries, the rate of under-the-table activity is below 10 percent in the financial sector but up around 35 percent for construction, FEF said.  

The FEF said Spain's tax office is missing out on somewhere in the region of €18 billion to €20 billion because of this illegal economic activity.

The foundation also argued that this black economy provides work to at least a million Spaniards. So why is it the the Spanish black economy so much larger than the UK's , is this a culture issue or a tax issue? 

I have spent close to 6 months in Spain and in all that timr have only ever paid cash for products and services.

I guess the landlords, garages, restaraunts vets and doctors have all declared my cash transactions?

Spain seens to be very much a cash based environment/

Rossetti

The FEF said Spain's tax office is missing out on somewhere in the region of €18 billion to €20 billion because of this illegal economic activity.

I think those working in the black economy are probably doing Spain a favour.  The government here would only find more ways to waste this extra money.  They'd only do something daft like build more airports with it.

I recall chatting with a senior manager of the Federation of Master Builders (UK). I asked him why the ‘informal economy’ was allowed to be so rampant. He told me it was a political hot potato with too many negative side effects. It was also a ‘don’t go there’ political football.

Maybe...Just maybe, one day, someone in power will wake up and realise that if you keep taxing people until they squeak this might have a little something to do with why people take cash, sell goods, and do work for .....Cash in hand.

 I think it might be due to the fact that Spain economy is built on independant traders and small family businesses and transactions tend to be smaller thus more easily payable in cash. And as taxes are pretty tough on these businesses and there are no fiscal iniciatives to help them the temptation is too great and encourages them to do cash transactions. 

About 15 years ago I couldn’t figure out why in Liverpool, my home city, there was very little sign of austerity. At the time it was a fiscal basket case economy (so called). It was getting extra EU aid. Great.

But as I say the city was booming, night life great. The Jaguar main dealers was selling more than the London main dealers, it was necessary to book a restaurant table. Liverpool’s La Tasca restaurant was the most profitable in the UK . . . And so on.

A tradesman enlightened me. I made enquiries and he was proved right. He had told me, ‘in Liverpool very little actually goes through the till.’ (unrecorded transactions).

Typically, I asked a builder friend how much he was in pocket each year. Officially he was facing tough times. In fact he was earning over £1k a week.

The Germans and Irish panicked when they were transferring to the Euro. How to explain a mattress full of untaxed deutschmarks and punts.

Paying tradesmen cash so he doesn't have to pay income tax on it and you don't have to pay IVA\VAT happens everywhere and is hard to stamp out.

In Spain (certainly Southern Spain where I have experience) it is the norm for so many services to be paid for with cheques made out to "El Parador" or cash and the payee usually even gives a receipt! This appears to be socially acceptable and with corruption still wodespread it is difficult to see it being curtailed any time soon.

In the UK HMRC are pretty effective and it would not be possible to get away with these practices. It is that, rather than Brits being more honest, which, IMO, makes the difference

In the meantime the tax office finds it more fruitful to clamp down on Ex pats with hard earned savings. How those in the black economy must laugh at us, worrying lest those checking the submitted 720 forms pounce on on a pensioner with a forgotten bank account so they can impose a hefty fine.

Why can't they do anything about the black economy? Why should tradesmen prosper at our expense?

I think I will write a cheque for services now, and it WON'T be made out to El portador!

Caposol,

wouldnt call a vet or doctor a tradesman but they were happy to adjust the price for cash.

I'm only suprised its only 20%. But that might be just a declared 20%!

Rossetti

There is a tax system out in the big wide world that has been tried and as far as i know is still ongoing, and i did read some years ago that it has worked very well for the countries that are using it, all of them reported an increase with incoming tax revenue, a reported rise in turnover of many trades and companies, and a couple of them practically wiped out all the debt due to this increase in tax revenue.

It's the one size fits all tax rate of 16%, no mention has been made of people if they are still fiddling taxes, but as we are all aware it still probably goes on.

 Camposol

I doubt anyone would take a cheque these days worried they won't be able to cash or it bouncing! Cash / Trasnfer or nothing and cash is always best!

I was at my garage the other day picking up my car and when I went to pay the bill he asked if he could only put the parts on the invoice and charge the labour seperately, of course he wouldn't add the VAT to the labour. As it was an important repair on the engine I wanted proof he had worked on it so I insisted on the full invoice but he wasn't happy. 

My impression was that he wasn't  trying to prosper though or earn more than he should, he was just trying to make ends meet, if he had known I was going to ask for an full invoice he would have had to put the price up and I went to him initially because he was cheaper on the quote than anyone else.  It has always been a problem in Spain and the Spanish love cash I think it is due to so many family business and small transactions as i mentioned before but I think it is also due to the lack of control.

"In the UK HMRC are pretty effective and it would not be possible to get away with these practices."

davmunster , in what way are the UK more effective? How do they keep this under control?

Ian

This is just one example but it illustrates the point. The business I used to own supplied burger boxes etc to fast food outlets. We always charged VAT but on several occassions we had vists from inspectors not to check on our business but to look at what our customers were buying. The number of burger boxes they bought was just one measure they used to assess if they were declaring their full eartnings. When they found someone cheating boy did they make them pay! These guys knew what they were doing and more than paid for themselves! I don't see any serious attempt to do anything like this in Spain.

I agree on your other point - many Spanish businesses have no option but to cheat to survive.

 in the UK you will find that if you get a visit from the VAT man, he knows the fiddles with your business because if they look at say a garage, bet your bottom dollar the VAT person owned or run a garage before he joined the VAT, same as in a chip shop etc etc.

Think you would find VAT inspectors were trained to deal with all sorts of businesses.

It was generally a case of experience and the "revenue nose". The latter was something you could never train  unfortunately.

I'm afraid that in all my years with HMC&E never met anyone who had owned a garage of a chip shop. LOL

Jean

I'm afraid that in all my years with HMC&E never met anyone who had owned a garage of a chip shop. LOL

Well i wont say what i own but on the couple of times i have had the visit one of them had been in the same business he was checking me out for, another time a Lady came into another of my business's and she had worked in the same business as this one, quite openly told me she knew what went on, my brother-in-law owned a couple of fish and chip shops in Manchester and when the visit came it was a chinese chap, turns out the family were in fish/chip shops.

Can only be that you lot dont talk to each other much.

i was always told we talked too much! Obviously i did not know all the HMC&E staff in the UK. Was simply speaking of my experience in the Department.

I was interested to read in Euro Weekly News today that every Spaniard paying income tax correctly is paying 1,910 euros more per year to compensate for those not paying their tax!

davmunster- if Spanish businesses have to cheat to survive, it's a pity we don't have the same option. as it appears the the Hacienda wishes to go through our affairs with a fine toothcomb.

When will something be done about the British pool cleaners, illegal taxi drivers and gardeners etc, who get paid cash to supplement their often handsome pensions, and don't declare a penny in income tax?

When was the last time you ever paid a tradesman in the UK by anything other than cash?  We kid ourselves on that the southern European countries are the only place where income tax and VAT are fiddled on a large scale.  It always make me laugh when I see the Spanish unemployment figures as prpbably half of them are doing work on the side!

If I paid a tradesman in cash  in UK, I would expect a full,  official receipt, inc vat, whereas if you pay in cash in Spain you won't get a receipt unless you demand one, and it wont be an official one, it'll be from a receipt book of the sort the Chinese shop sells, in other words, worth nothing.There will be no business number etc.