About the tax evasion and the lower insurance income

Disclaimer:
This is a topic on which I haven’t written so far, but lately has started exciting me, after I decided to start my own company(that hasn’t happened yet, but the drive is still there). Also note, that this article is related to the economic situation in Bulgaria.

I guess everyone that has worked in the private sector(I don’t know what’s the situation in the state sector, but I really hope that things are correct there) is aware of part of the schemes that employers use in order to pay higher salaries to their employees and keep more profits for themselves. The most common method is to declare that the employee is being paid less than what they actually are and the rest is handed in cash.

This way the employer has to pay less for social security, healthcare and taxes. Since the employee currently pays 40% of the taxes and social security, they also “take advantage” of that opportunity and “lose” less of their actual net profit.

On the other hand, the negative consequences for both the individual and the whole country are significantly higher. To name a few:

Negative consequences for the employee:

  • Smaller salary during paid leave.
  • Smaller benefits during maternity leave and temporary disability.
  • Smaller benefits during unemployment.
  • Lesser chance and smaller size of credits.

Negative consequences for the whole country:
A smaller amount of money goes into the country’s treasure. That makes paying out pensions and benefits for pensioners and the people in need more difficult(not to say impossible). Which leads to the fact that some of the money in the budget have to be shuffled around and instead of them being used for other means like education, healthcare, etc. they are used to cover pensions and benefits.

Now, if this was occurring on a rather small scale, the consequences wouldn’t have been so big. The problem is that this is not the case.

Here comes the time to admit, that I totally understand why employees and workers come to breaking the low when we talk about industries where the actual salary is already low enough.

On the other hand, I can’t understand and I don’t justify this behavior in industries where the companies make profits that are big enough to allow them to pay for the actual amount of social security that they should be paying for. An example of such a branch is the IT sector for instance. I’m guessing that most of the IT companies in Bulgaria seek and find clients across the globe, including some wealthier countries(like the US, Great Britain, etc.), which allows them to offer competitive prices compared to the local market all while getting a considerably high income for Bulgaria. Even if some companies don’t work mainly with clients from abroad, some companies offer a pretty costly(for Bulgaria) prices for services like building a website for example. Under any circumstances if the company is managed good and it has well-trained personnel, realization is almost guaranteed.

I don’t have the exact numbers and I can’t certainly state that if most of the sectors with high incomes start reporting the actual income of their employees there will be a tangible change, but I’m very confident about it. Unfortunately most of the people in Bulgaria(and not only) strive aim at improvement on the personal level, instead of towards a global one – and for as long as that is the case, the chances of the situation improving here will be smaller and smaller.

While I know that one swallow does not a summer make, my personal intention is to pay the real social securities and taxes to anyone(including myself) that works for me(in that sense, I’m a terrible capitalist I know ). This way I’ll rest assured that I’ve fulfilled my part of my duties towards the people that have worked their share and the people that will start working tomorrow.

3 thoughts on “About the tax evasion and the lower insurance income

  1. Love your article!

    If you allow me a comment I would like to emphasize the importance of: 1). the particular circumstances and 2). the individual choice.
    1. Considering that decent employment is still precarious in our country, I can clearly understand an employee, who would agree on such an arrangement if he/she is financially supporting family. Refusing to accept the conditions offered or to maintain the existing “order” the employee will quite likely face the alternative to be “kindly discharged” and together with everyone depending on him/her relay on the “generous” social benefits he/she has “honestly” accumulated so far.
    Who’s cause is more worthy – the strikers’, trying to change the status quo, or the strike-breakers, trying to feed their children? – probably a bit exaggerated, but illustrates my point.
    2. Let’s accept there are no immediately “pressing” circumstances and an employee can eventually afford to chose how to act. Will he/she be content with the “offer” and silently support this ubiquitous vicious practice, by just not opposing it?
    Same counts for an employer. I acknowledge the state has not been very supportive to small businesses and an entrepreneur might be tempted to, in his/her own turn, fight back, by “cheating” the state budget and paying less taxation. But I do know people running small businesses, experiencing difficulties and still trying to do the proper thing for their employees and taxation.
    When you do not have any alternative choice – you simply do not have and no one can blame you.
    When you are in the position to decide though – it all comes to one thing – what kind of person you are – because choosing the right thing to do when you do have a choice, is not only your personal right, it is your social responsibility!

    • Thank you!

      I agree with you, but when it comes down to choosing which way to go(in a situation where the person’s position won’t be compromised if they choose to be good citizens), a lot of people will choose the little bit of extra money even when they don’t need them to survive.
      For instance people with low salary will need those extra money to pay the rent, to buy food, etc. People with slightly higher salary will “need” those extra money to go to a cafe every other day. People with even higher salary will again “need” those extra money in order to afford the latest smartphone, etc., etc.

      The problem is where to draw the line.

      Which is why I’m mostly negative towards business owners of businesses that thrive, since they are the ones that should step up and choose the correct way of making profit.

  2. Unfortunately, you are quite likely right about that, so sincere congratulations and admiration from my side, on your decision to pay the real social securities and taxes to everyone who will work for you (including yourself)!

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