Shadow economy is prevalent across the world, Al-Jadaan says
Minister of Finance and Chairman of the Zakat, Tax and Customs Authority (ZATCA) Mohammed Al-Jadaan – during a panel discussion held under the theme “Addressing the Shadow Economy Using Digital Solutions”, as part of the Riyadh-hosted Zakat, Tax and Customs Conference said that the shadow economy today has become prevalent across the world and is not limited to one country.
According to the latest reports issued by the International Monetary Fund (IMF), 154 countries have shadow economies of 10-60%, where the average is 32% of the economy, substantially larger than comparative normal averages, stressing that solutions of government in addressing shadow economy should be monitored carefully, as successful solutions in certain countries might not succeed in others.
The minister stated that the Kingdom and its sectors are witnessing cooperation and unity among all authorities concerning the automation of work, the facilitation of registration processes and the facilitation of compliance processes, stressing that hundreds of thousands of establishments today do not need to submit their tax statements to the tax apparatus of the Zakat, Tax and Customs Authority. Instead, they are sent by the authority to the taxpayers for either objection or payment, which facilitates the commitment process and reduces costs significantly.
He stressed that the technological progress in the Kingdom has contributed significantly to reducing the phenomenon of the shadow economy and the advanced development of the technological infrastructure, as well as the Central Bank and the technological progress and digital infrastructure, where it is much more advanced than the developed countries, reiterating that the shift in payment to digital payments reduces costs.
Al-Jadaan noted that over the past five years, the Kingdom’s e-payment devices have reached 300,000 compared to today, where the number reached around 1.2 million e-payment devices. In terms of digital payments, they have recently increased by 1,700%, while the shift in e-payments has reached 62% after they previously stood at less than 40%. In the business sector, payments have grown to 80-82%.
These procedures have contributed to and facilitated the way for facilities and individuals to register and commit, which also helps the government to identify faults and deal with them.
The minister said that the Kingdom has a long, substantial, decades-long history of protecting personal data through banking and civil status regulations, among other practices.
Regarding tax systems, he said that ZATCA has applied the e-billing system with a clear background, stressing that the system highlights the importance of maintaining confidentiality and non-disclosure of information, as well as the recently issued data protection by-law that emphasizes this concept.
Al-Jadaan concluded his statement by saying that ZATCA invests hundreds of millions on the technological side and it is important to emphasize the importance of maintaining confidentiality and non-disclosure of information of enterprises.
For his part, the Minister of Economy and Planning, Faisal Al-Ibrahim said that the latest estimate of the volume of the shadow economy in the Kingdom was close to the economies of developed countries, standing at 15%, whereas the rate for low-income countries is estimated at 30%, noting that the volume of shadow economies has dropped in the Kingdom after launching solutions and initiatives.
During the session, he noted that an example of efforts to combat the Kingdom’s shadow economy is the hike in non-cash transactions, where points of sale increased from 400,000 to 1.4 million, and simultaneously, the value of transactions increased from SAR 300 million to double. Other solutions included applying the e-billing which has supported efforts to combat the shadow economy, in addition to other laws, such as regulating the contractual relationship with guest workers.
He stressed that combating the shadow economy addresses economic challenges, such as low wages, low productivity, lack or shortcomings of competitiveness in the private sector, lack of access to social protection for all beneficiaries, and other challenges.
Other benefits of addressing the shadow economy — besides the impact on public finances by increasing revenues include the impact on the competitive environment, the working environment and its organization, as well as maximizing the benefit of citizens and residents by lowering the proportion of the shadow economy, resulting in the benefit of the macro economy.
The greater the GDP, the greater the opportunity for higher financing capacity, and combating and reducing the shadow economy in the long term increases the attractiveness of the economy and expands the economic base.
Meanwhile, the International Head of Economics at BNP Paribas Dr. Marcelo Carvalho stressed the need to combat the shadow economy and face economic challenges by addressing some activities that were affected by the COVID-19 pandemic in wide areas of the world.
Considering the shadow economy is key to ensuring combating high demands and guaranteeing to have a clear path for the national economy, where major advantages include high taxes to address it, praising the versatility of the tax system in the Kingdom.
The minister stated that the Kingdom and its sectors are witnessing cooperation and unity among all authorities concerning the automation of work, the facilitation of registration processes and the facilitation of compliance processes, stressing that hundreds of thousands of establishments today do not need to submit their tax statements to the tax apparatus of the Zakat, Tax and Customs Authority. Instead, they are sent by the authority to the taxpayers for either objection or payment, which facilitates the commitment process and reduces costs significantly.
He stressed that the technological progress in the Kingdom has contributed significantly to reducing the phenomenon of the shadow economy and the advanced development of the technological infrastructure, as well as the Central Bank and the technological progress and digital infrastructure, where it is much more advanced than the developed countries, reiterating that the shift in payment to digital payments reduces costs.
Al-Jadaan noted that over the past five years, the Kingdom’s e-payment devices have reached 300,000 compared to today, where the number reached around 1.2 million e-payment devices. In terms of digital payments, they have recently increased by 1,700%, while the shift in e-payments has reached 62% after they previously stood at less than 40%. In the business sector, payments have grown to 80-82%.
These procedures have contributed to and facilitated the way for facilities and individuals to register and commit, which also helps the government to identify faults and deal with them.
The minister said that the Kingdom has a long, substantial, decades-long history of protecting personal data through banking and civil status regulations, among other practices.
Regarding tax systems, he said that ZATCA has applied the e-billing system with a clear background, stressing that the system highlights the importance of maintaining confidentiality and non-disclosure of information, as well as the recently issued data protection by-law that emphasizes this concept.
Al-Jadaan concluded his statement by saying that ZATCA invests hundreds of millions on the technological side and it is important to emphasize the importance of maintaining confidentiality and non-disclosure of information of enterprises.
For his part, the Minister of Economy and Planning, Faisal Al-Ibrahim said that the latest estimate of the volume of the shadow economy in the Kingdom was close to the economies of developed countries, standing at 15%, whereas the rate for low-income countries is estimated at 30%, noting that the volume of shadow economies has dropped in the Kingdom after launching solutions and initiatives.
During the session, he noted that an example of efforts to combat the Kingdom’s shadow economy is the hike in non-cash transactions, where points of sale increased from 400,000 to 1.4 million, and simultaneously, the value of transactions increased from SAR 300 million to double. Other solutions included applying the e-billing which has supported efforts to combat the shadow economy, in addition to other laws, such as regulating the contractual relationship with guest workers.
He stressed that combating the shadow economy addresses economic challenges, such as low wages, low productivity, lack or shortcomings of competitiveness in the private sector, lack of access to social protection for all beneficiaries, and other challenges.
Other benefits of addressing the shadow economy — besides the impact on public finances by increasing revenues include the impact on the competitive environment, the working environment and its organization, as well as maximizing the benefit of citizens and residents by lowering the proportion of the shadow economy, resulting in the benefit of the macro economy.
The greater the GDP, the greater the opportunity for higher financing capacity, and combating and reducing the shadow economy in the long term increases the attractiveness of the economy and expands the economic base.
Meanwhile, the International Head of Economics at BNP Paribas Dr. Marcelo Carvalho stressed the need to combat the shadow economy and face economic challenges by addressing some activities that were affected by the COVID-19 pandemic in wide areas of the world.
Considering the shadow economy is key to ensuring combating high demands and guaranteeing to have a clear path for the national economy, where major advantages include high taxes to address it, praising the versatility of the tax system in the Kingdom.