The Unobserved Economy – An Indicator of Moldova's Underdevelopment

The unobserved economy has grown steadily over the past decade, reaching 28% of GDP in 2013. The fiscal gap, the difference between potential and collected tax revenue, stood at about 9% of GDP, excluding the illegal sector. Undeclared work and “envelope” wages cost the state around 6.5% of GDP. The study notes that the Tax Code does not ensure optimal regulation and that almost no material sent by tax bodies to law enforcement has had any effect. It recommends giving the State Tax Inspectorate powers of criminal investigation.

Tax morality has risen over eight years, but low and rarely applied penalties still encourage concealment of income. The authors call for reforms on corruption, justice, public institutions and pensions. Recommendations include wider card acceptance, salaries paid by bank transfer, balanced social contributions, much higher fines for informal employment, online platforms tracking public spending and support for entrepreneurship.