Government set to fight against freelancers

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April 22, 2016 18:16

The authorities are looking for ways to increase tax revenues, bearing in mind financial risks in the next few years. However, enacted restrictions on freelancers could result in deteriorating living standards and growing dissatisfaction of a large group of people.

On August 8, Prime Minister Myasnikovich called for improving measures against fictitious employment and to find ways to force freelancers to pay taxes and pension contributions.

Government’s initiative is formally explained by the desire to increase the share of tax revenues in GDP. Today 45% of Belarus’ GDP is made of wages, 42% of profit and depreciation of enterprises and 13% comes from net taxes.

On the other hand, according to the authorities, there are about 400 thousand working age people in Belarus that are not registered as workers or students, which makes about 9% of the total employed in the economy. Accordingly, these people do not pay income taxes and pension fund contributions, however, in the Prime Minister’s view, they are active users of free public services, for example, healthcare and education.

The attempt of Myasnikovich to engage this large group of Belarusians in legalizing their activities is rather unexpected, given that the previous government has long turned a blind eye to informal employment, for example, during the 2011 currency crisis. Their argument at that time was that even if a citizen works informally, he or she still contributes to foreign currency inflow to the country.

Government’s initiative could be based on the same concerns, which were recently voiced by President Lukashenko in connection with the need to pay off foreign debts in 2013-2014. Namely, Lukashenko said that if there was no money to pay off debts, he would be prepared to abandon his promise of the average salary at USD 500.

It is likely that after the suspension of Russian naphtha supplies in Belarus for an indefinite period, the government recalculated financial risks in the coming years and decided to play safe and to engage resources of the potential 400,000 taxpayers.

It is difficult to assess the impact from this initiative, as it depends on how active the government will be trying to engage all those non-officially employed in the legitimate economy. There are no doubts that this decision will increase resentment and will lead to other forms of tax evasion and may also cause a sharp increase in officially registered unemployment. Nevertheless, the initiative per se implies there is a shortage of managerial strategies in the government.

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