Belarusian Government: Strong on the Opposition, Weak on the Shadow Economy
The Belarusian government plans to step up its campaign against the shadow economy. In January 2016, new amendments to the Tax Code will come into force which introduce harsher punishments against illicit business. Last month, President Alexander Lukashenka demanded that Valery Vakulchyk, the head of the KGB, suppress illegal economic activities.
Belarus' shadow economy has been an elephant in the room for many years. Restaurants do not document all of their employees wages. Shops sell goods without receipts. State organs have for a long time closed their eyes to this, apparently fearing that more law enforcement would cause political repercussions.
State of Denial
The government downplays the problem of the shadow economy. This spring, the Tax Ministry announced that the share of the shadow economy accounts for only about 11% of national GDP. Two years ago the same ministry told that it accounts for 8-10%.
Yet a mid-level National Bank official, Lyudmila Stefanovich speaking at a conference in Minsk in May stated that, “the share of shadow economy in Belarus is very big. According to research results, it is about 35% of GDP.”
Indeed, in spring 2015, the IPM Research Centre conducted a survey asking small and medium enterprises whether some of their activities existed in some areas of the shadow economic. 35% of respondents dared to admit that there were such elements.
Some experts believe that the share may be even higher. In 2010 the World Bank published a study on the shadow economy which assessed its share in Belarus in 2007 at 43.3% of the GDP. Among Belarus's neighbours only Ukraine fared worse with 46.8%. The situation in the national economy has failed to substantially change since 2010.
Promises Instead of Documents
Tax evasion in legally registered private businesses is commonplace. The author recently visited the city of Maladzechna near Minsk and was impressed that very few private businesses even in respectable looking large trade centres, such as Troyka and Modul bothered giving receipts for bought goods.
The vendors promised to accept returns if customers found deficiencies. They had no concerns about possible undercover tax officers, although they hardly pay taxes for the goods sold. On top of this they probably pay somebody in order to be allowed to work so.
Last year, state agencies resorted to a new form of control by assessing the whole income of a vendor by measuring his income over a short time and then appropriately multiplying it. Tax officials conducted 80 raids using this method, and found irregularities in 70% of business entities.
Another sphere of tax evasion involves accommodation rent by private landlords, as well as renting premises to be used for commercial and manufacturing purposes. Houses and flats are often rented in Belarus without registering a contract with the authorities. In May, the real estate web-site Pro-n.by estimated that every second flat (i.e., more than 46,000) is rented in Minsk illegally.
Even production lines (for instance tile production) and workshops visibly consuming electricity and water have for years functioned without proper registration. Last year, the tax authorities conducted around 2,600 raids on premises which were suspected to be rented illegally. Almost in all cases it turned out to be the case, as more than 2,500 persons were found to rent property without paying the necessary tax.
Illegal car repair workshops, which have many customers, work on unregistered premises without encountering problems with the police or tax authorities. For instance, in Maladzechna local authorities do not care much about such illegal workshops. Meanwhile, because of this unfair and illegal competition legally registered workshops who pay taxes and social insurance have to reduce personnel and then close down.
Officials of the Tax Ministry articulated the problem of car repair workshops in the early 2010s and promised to take measures. Little has changed since then, thousands of these workshops seem to continue work throughout the country and government agencies no longer speak of the problem anymore.
The government apparently avoids antagonising private entrepreneurs engaged in illegal practises. The chairman of State Control Committee, the key control agency, Leanid Anfimau in September announced that the number of raids conducted by the Committee since 2000 decreased tenfold, from 14,000 to 1,500 last year.
Certainly, dubious business practises in Belarus involve much more than hiding income. Violations of labour law stand out as another common practice. Even a fashionable restaurant in the prestigious Niamiha neighbourhood of Minsk belonging to a known Russian businessman pays half of the employees wages “in envelopes,” its personnel told Belarus Digest. Therefore it avoids paying more taxes and social insurance for them, effectively cutting their future pensions.
It is easy to spot these violations as a minor cook gets officially just $250 per month. Without additional payment he would be unable to work. Yet no state agency has an interest in the situation because a raid on this business will bring the state agencies up against an owner who is well connected with the Belarusian regime.
And you do not need to be so influential to be able to break the law without punishment. Even low-level administrators of discount chains have no fear to say those willing to work as merchandisers that if employed they will be prohibited, for instance, to take any sickness leave for the child. This violates Belarusian law, yet the practise has functioned for years without causing the interest of state agencies.
The Belarusian Government: Strong Yet Weak
The Belarusian state faces a paradoxical situation. On the one hand, it controls the political life of the country, including election results. On the other hand, it fails to suppress the shadow economy. The size of the latter remains relatively stable. Moreover, the government displays little willingness to challenge the illegal economy.
For a good reason. It could not do anything about it. Analysing the problems encountered by new independent countries Samuel Huntington once wrote, “there is a failure to recognise that most countries are suffering from an absence of power in their political systems.”
The behaviour of the Belarusian government illustrates the point. State authorities fear the consequences if they touch illegal deals. So far, the Belarusian private sector has refused to finance the political opposition to the Belarusian leadership. The state effectively buys political silence by tolerating not just informal economic schemes but also outright illegal businesses.
The Belarusian state remains narrowly focused on political control. It achieved sophistication in preventing social and political unrest or doctoring election results. Yet its taxation organs let a large shadow economy thrive which seriously undermines honest competition, labour law, taxation and pension systems.
Belarusian Satellite, Multiple Rocket Launchers, Nuclear Plant – State Press Digest
Belarus leaders develop closer defence industry cooperation with China and do not want a Russian airbase on their territory.
Although Belarus has no alternative to integration with Russia in the foreseeable future, the two countries different economic models and the ideas vacuum in Eurasian integration make integration with Russia a challenging undertaking. In 2017 Belarus will launch a satellite and in 2018 the first block of a nuclear power plant will start operating near the Lithuanian border.
Refugees from Syria, Ukraine and other countries seek shelter in Belarus. The disabled have difficulties with accessing the entertainment places. All of this and more in this edition of State Press Digest.
Lukashenka inspects the production of multiple rocket launchers. Belarus Segodnia highlights the visit of Lukashenka to the defence industry plant in Dziaržynsk to check the development of the Palanez launcher. Belarusian specialists claim this is one of the most modern and powerful rocket systems in the world. Moreover, Belarus soon hopes to start the autonomous production of rocket engines. Belarus has been developing Palanez with Chinese assistance after Russia refused to transfer to Belarus a similar defence system.
Now, as Russia is pushing for an airbase in Belarus, Lukashenka tries to find more arguments to impede this initiative: “We have an exclusive defensive strategy, and it means that it should be able to cause unacceptable losses to the enemy. What is an airbase today? The jets will be shot down at the very beginning of the conflict. But this (Palanez) is a supermodern machine”, Lukashenka said during the visit.
Union of Belarus and Russia has no alternative. Soyuz newspaper gives an interview with Moscow-based political scientist of Belarusian origin Kiryl Koktyš on the future of Belarusian and Russia integration. Although the post-Soviet states have developed a number of integration projects like the CIS and the Eurasian Economic Union, the Union State of Belarus and Russia remains the most successful project in the social sphere. It gives both state's citizens equal rights in property, education and healthcare.
However, the expert notes that the economic models of Belarus and Russia, state capitalism and liberal capitalism respectively, are barely compatible for deeper integration. The EEU, initially a liberal economic model, cannot currently be implemented because of Western sanctions. It needs state protection and will likely be based on Belarusian experience of economic management in future. Yet at the moment a union economic ideology is absent.
Speaking of the removal of sanctions from Belarus's political leadership, Kiryl Koktyš opined that it will not bring a close association between Belarus and the EU. Europe and the West in general are not ready to pay for loss of values, as the Ukrainian case demonstrated perfectly. So Belarus will remain in Russian orbit without any major shifts.
Nuclear power plant to start in 2018. Belarus Magazine publishes a report from the construction site of the nuclear power plant near Astraviec town on the border with Lithuania. Currently around 4000 workers are involved in the construction and next year 8000 will be working there. The first power block of the plant will be launched in 2018. The project proposes a threefold growth of the town's population to 35,000 until 2020.
Thanks to the nuclear plant Belarus will reduce its gas consumption by 5 bn cubic metres annually, and thus will strengthen energy independence. However, state journalists always forget to mention that the plant is built using Russian technologies and will generate energy from Russian uranium, so dependence will continue.
Belarus will launch its spacecraft in 2017. Soyuz newspaper writes on the meeting of CIS representatives on space cooperation which took place in Minsk. Currently, Belarusian academics in cooperation with Russian corporation Roskosmos are developing a satellite. It will become the first model of the Belarus-Russia space group. It is designed to pick up the sounds of earth from a distance and is expected to be launched in 2017. Roskosmos head Igor Komarov emphasised that the Belarusian hitech plants Integral and Peleng remain strategic suppliers of Russian space industry.
Disabled people cannot enter nightclubs in Belarus. Belarus Segodnya writes about the problems of disabled people who have restricted access to places of entertainment. The newspaper provides a number of life stories of people who could not get into night clubs. The security teams of the clubs blamed suggest strange reasons for not admitting the potential disabled clients, saying that they are “unable to provide sufficient safety to the disabled” or “ they look unwell”. Human rights activist Siarhei Drazdoŭski says that ethics of treating the disabled is unknown among most public and private actors in Belarus.
Homiel centre of adaptation and rehabilitation accepts refugees. Belarus Magazine tells the stories of families from various countries who chose Belarus as a refuge to escape conflicts in their homelands. Homiel region bordering Ukraine is usually the first destination for Ukrainians from the Donbas. The Belarusian authorities usually offer them work in agriculture where Belarus has a drastic shortage of workers. Meanwhile, Belarus also accepted 14 Syrians and around 100 more applied for refuge. According to the joint project with the United Nations, the government provides them with new flats, monthly financial help and adaptation services.
Top businessman and senator from Hrodna arrested. Vecherniy Grodno newspaper writes about the arrest of one of the biggest businessmen from Hrodna, Andrej Paŭloŭski. According to the KGB he evaded taxes of up to $8,2m in recent years. With companies from 8 other countries he organised a grey scheme of import and selling agricultural products. Andrej Paŭloŭski was the second most influential businessman in Hrodna region and also a member of the Council of Republic, the upper chamber of the Belarusian parliament, since 2012. During the last year and a half he became the third senator to be deprived of parliamentary privilege on the grounds of criminal persecution.
The State Digest Digest is based on review of state-controlled publications in Belarus. Freedom of the press in Belarus remains restricted and state media convey primarily the point of view of the Belarusian authorities. This review attempts to give the English-speaking audience a better understanding of how Belarusian state media shape public opinion in the country.