Approximately one fifth of the Russian, working-age population exists in the ‘informal’ economy, or the cash economy that does not report, or pay, taxes to the Russian treasury. This is the highest level in over a decade as Moscow struggles to raise enough funds yearly to pay for a military buildup as well as reduced social services. The number is over fifteen million people. In addition, when ‘blackmarket,’ or illegal trade is added, the number is closer to 40%.
According to a new report from Russia’s Federal Service for State Statistics, or Rosstat, 21.2 percent of Russians were employed in the informal sector in 2016, up from 20.5 percent the year prior. The informal economy, at least as defined by Rosstat, includes people who work at enterprises not registered as legal companies, such as those who are self-employed or work for an “individual entrepreneur,” reports Foreign Policy Magazine.
The informal sector also decreases productivity and efficiency by employing people who might otherwise develop the private sector, according to Vadim Grishin, an expert on Russia’s economy at the Center for Strategic and International Studies, writes Foreign Policy.
Many Russians work multiple jobs and have sideline work that they perform in off hours, such as tailoring, working on automobiles, or even dentistry. There have been many protests in Moscow, and elsewhere, over attempts to raise taxes on the trucking industry and other sectors of the economy.
Strikingly, from a tax standpoint, Russia is more tax friendly than the United States with a 13% flat income tax rate. However, this business-friendly stance is an illusion as severe corruption drains still far too much from Russian production and economic activity.
