Crackdown on cash-in-hand customers

Government says it takes two to tango when it comes to black market economy

Ticks are carrying a new strain of bacteria (Photo: CDC/ Dr. Christopher Paddock)
November 22nd, 2011 11:04 am| by admin
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If youÂ’re thinking about getting some under-the-table work done on the car or around the house, pay cash-in-hand at your own risk. The government is promising to punish the patrons of black market services, as well their purveyors, in the future.

The tax minister, Thor Möger Pedersen (Socialistisk Folkeparti), says that from now on the tax authority Skat will hold the customers who procure black market services, along with the people who provide them, responsible for cheating the system.

But Pedersen is offering an easy protection: pay for all goods and services with a Dankort debit card or by bank transfer. That way Skat has a record of the payment, and the full tax responsibility falls back on the person who got paid for the work.

The government is suggesting, in any case, that Danes limit their cash payments to a maximum of 10,000 kroner. While paying more than 10,000 kroner in cash will remain legal, adhering to the limit ensures that the buyer wonÂ’t be culpable in a major case of tax evasion.

It’s a simple enough sounding solution to a situation that is costing the state an estimated 50 billion kroner per year in unreported earnings and sales – almost three percent of GDP – but the majority of voters are against it.

Some 56 percent of those interviewed in a recent Rambøll/Jyllands-Posten opinion poll opposed the measure to crack down on the customers in black money transactions. Even among the centre-left government’s own voters, only 44 percent supported the measure.

Statistics point to an ethical double standard.

Researchers from the Rockwool Foundation think tank reported last year that while most Danes disapprove of ‘cheating on taxesÂ’ in principle, the vast majority, in fact, willingly participate in tax cheat schemes by contracting black money work. The reason – for both the buyers and the sellers – is to avoid paying the country’s whopping 25 percent VAT.

In 2010, 52 percent of Danes interviewed for the Rockwool study reported that they had knowingly paid for someone to do work off the books in the past year; another 28 percent said they would have willingly done so, had the need or opportunity arose. Meanwhile, just 20 percent said they had not and would not.

Yet while 80 percent of all Danes interviewed for the 2010 study either had or would have engaged in the black market economy, a majority of Danes also reported that ‘purchasing black money services’ was morally unacceptable.

On a scale of one to ten, where one equaled “not at all acceptable” and ten equaled “completely acceptable”, Danish voters in 2008-2009 gave ‘purchasing black money services’ an average score of 4.2, or somewhat less than acceptable, according to the Rockwool Foundation.

Torben Tranæs, the Rockwool Foundation’s head of research, called it a type of “sophisticated morality” that the majority of Danes disapprove of black money work in the abstract, or when it concerns other people, yet willingly engage in it when it affects their own wallets.

“Most people still see themselves as good taxpayers, even though they contract under-the-table work,” Tranæs told Jyllands-Posten.

Statistics show that tradesmen, farmers and fishermen, and car mechanics and car dealers are among those who do the most black money work in Denmark. At the same time, data reveal that the wealthier a family is, the more likely they are to pay cash for unreported work, according to the Rockwool Foundation.

Adding to the complex picture of DanesÂ’ relationship to the black market economy, the government reports that the number of people snitching on others for hiring workers off the books has skyrocketed.

Since January 2011, the authorities have received more than 7,000 tip-offs to black money tax cheats – up 30 percent since last year. Four out of five of those tip-offs have been anonymous, but the vast majority have led to the collection of unreported taxes, reports Jyllands-Posten newspaper.

So far, Skat has identified some 100 million kroner in taxes on previously unreported income from these tip-offs. The tax authority expects to uncover as much as 25 million kroner more in ‘black taxes’ before the year ends.

As an encouragement to pay above the board, the government has decided to continue through the end of 2012 the 15,000 kroner per person tax deduction for household help (hÃ¥ndværkerfradrag) introduced by the previous government. The tax minister has also promised to loosen the rules regarding tax-free favours among family and friends.

Fact File | Black market for services

Most people in Denmark contract black money services:
•    52 percent bought black money services in the past year
•    28 percent would, if the opportunity arose
•    20 percent want nothing to do with it

The wealthiest Danes buy the most black market services. Percentage of households that paid cash for black money jobs in the past year by annual household income:
•    0-599,999 kr: ~ 30 percent
•    600,000-999,999 kr: ~ 42 percent
•    1,000,000 kr or more: ~ 47 percent

The more highly educated people are, the less likely they are to work under the table.

Twice as many men as women work under the table.

The majority of black money work is done for friends, family or acquaintances.

Source: Rockwool Foundation, 2010

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SEE RELATED STORIES

Tax break for household help

Denmark on tax haven blacklist

Opinion: Why do we need companies that donÂ’t pay tax?

Avoiding the taxman

Note to readers: The Copenhagen Post will now refer to national political parties by their Danish names and abbreviations. DOWNLOAD The Copenhagen Post’s overview of Danish political parties.

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