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Russia: Economy Stronger Than Meets The Eye

  • John Varoli

St. Petersburg, 19 August 1997 (RFE/RL) -- An increasing body of experts contends that official statistics indicating a severe economic decline in Russia fails to reflect thriving economic activity in the gray market known as the shadow economy.

Lev Savulkin, an economist at the Leontief Center in St. Petersburg, estimates that the shadow economy is roughly equal to 28 percent of recorded gross national product. He says the number is higher, about 35 percent, in St. Petersburg. He says that the shadow economy often is larger in cities where there is more opportunity to engage in trade and services, the sectors where tax evasion is most common.

Economists and entrepreneurs charge that Russia's tax code forces companies into the shadow economy. Taxes can siphon off up to 80 percent of an enterprise's profit. Personal income tax evasion also is a mass phenomenon, although the personal tax rates are much lower.

GosKomStat estimates that Russians earned the equivalent of $46 billion off the books in 1995. Many people make ends meet by relying on working odd jobs and by living off the produce that they grow on private land.

This past spring, nationwide, 3 percent of Russians filed income tax declarations for 1996. In St. Petersburg, 123,000 residents out of a working population of 3 million filed (4 percent). They paid the equivalent of $1.3 million in income taxes.