Digitalization - © mayam_studio/Shutterstock

© mayam_studio/Shutterstock

At least 20% of the economy of North Macedonia develops in the “grey zone”, thus depriving the country and the national budget of resources essential for development. The government of Skopje has announced that it wants to combat the phenomenon through more effective digitalisation

11/09/2024 -  Aleksandar Samardjiev Tetovo

The new government in North Macedonia announced its intention to overcome a major challenge for the country, dealing with the so-called grey economy and tax malpractice through advanced digitisation. The main expected benefit is to increase revenues for the state budget.

Richer state coffers will be an opportunity for the state to have its own funds for capital investments and reduce money borrowing. Part of the plan is to find a way for employers to pay the mandatory health and pension insurance amounts, to be collected in the Pension Insurance Fund from which pensions are paid. The Fund currently uses money from the state budget, due to a constant lack of funds.

The businessmen we spoke with say that undeclared trade begins at the borders, when in addition to the regular import of products, other items are smuggled in various ways, which then become part of the grey economy, without paying taxes, fees and contributions for employees, water bills and electricity according to industrial tariffs.

Trajan Angeloski, president of the Union of Chambers of Commerce of Macedonia, assesses that the sooner and more comprehensively digitisation is applied, the faster grey economy will decrease. According to him, decades of experience have shown that where there is a human factor in the regulation of economic flows there is a high probability of susceptibility to corruption and attempts to use opportunities to circumvent the system in order to earn as much as possible in an illegal way.

"For example, there used to be a system of distributing vouchers: it was a scandal, no one took responsibility for its failure, and coincidentally or not, 80% of the recipients were people of the same nationality as the minister. 95% of the vouchers were used in only one place – Popova Shapka. We don't need things like this if we want to be a serious country. But such situations could be elegantly solved by a wide digitalisation of the economic system. In this way, we think that the grey economy would be reduced to a minimum”, says Angeloski.

A significant portion of the economy is “grey”

The Institute for Economic Research "Finance Think", in its study "Granular examination of the informal economy in North Macedonia", estimates that the grey economy currently makes up for 21.3% of the overall economy, but maintains that the percentage could be higher, since measuring hidden economic activities and transactions is always challenging.

In a statement to the local media, the executive director of "Finance Think" Blagica Petreski estimates in approximately 500 million Euros the uncollected fiscal revenues from the grey economy – more than the announced loan that the Macedonian government wants to take from Hungary for the development of the economy. Therefore, she points out that it is necessary to increase the volume of tax collection, so there will be no need for such loans.

Digitalise to bring to light

The Public Revenue Authority and the Ministry of Finance are working to reduce the grey economy through multiple mechanisms, such as the full digitalisation of payments between firms with e-invoices as well as the Grey Economy Formalisation Strategy.

"The goal of the e-Invoice system is to be applicable to all taxpayers, that is, to provide an adequate opportunity for all types of taxpayers to be able to create, submit and receive an invoice in electronic form", the Ministry of Finance replied to journalistic questions.

The Public Revenue Administration informs that intensive preparations are being made for the implementation of the e-Invoice project.

"Several IT companies are already developing software to support the operation of domestic companies in the area of invoicing. IT companies recognise the e-Invoice not only as a tool to reduce tax evasion, but also as a tool that will have value added for companies”, reads an official statement published on the agency’s website.

Low trust in institutions

Researchers from “Finance Think” say that there is also a low tax morale of entrepreneurs and the population in the country, which is caused by poor institutional systems. They emphasise that the higher the perception of government corruption, the lower the tax morale and the higher the acceptability of the informality of small entrepreneurs.

The authors of the study "Grey part of the Macedonian economy: size, implications, solutions" warn that the establishment of an e-invoicing system will be a real robust move to "fight against the grey economy" and therefore it is recommended to incorporate an e-inventory subsystem , to control the import of all goods and the method of transfer of reserves to the next in line.

It is considered that the grey economy in the country consists of people who work but for whom the employer does not pay contributions for health and pension insurance, and companies, while the third segment is considered fraud or non-declaration of turnover, with the main purpose of avoiding payment of VAT value added tax.


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