The Shadow Economy

1. What is the shadow economy?

In general, shadow economy activity is activity in respect of which businesses (including professions) and individuals engage in inappropriate practices with the aim of not complying with their legal obligations relating to matters such as taxes & duties, PRSI, licenses and employment. Shadow economy activity includes -

  • not declaring, or under-declaring, a source of income (for example, not declaring or under-declaring 'cash jobs') so as to avoid tax and other liabilities;
  • employers paying employees in cash under an 'off the books' arrangement so as to evade tax and PRSI liabilities;
  • 'working and signing' - working or running a business whilst at the same time claiming falsely job-seekers benefit from the Department of Social Protection;
  • non-operation of the VAT system;
  • tobacco smuggling including the sale of illegal tobacco products;
  • oil laundering including the sale of washed diesel.

Most of the shadow economy activity takes place within that which is referred to as the ‘cash economy’ (i.e. the payment for goods and services by way of cash).

2. What are the main effects of shadow economy activity?

Shadow economy activity –

  1. reduces tax, duty and other revenues owing to the State;
  2. creates an un-level business playing field that has a negative impact on legitimate businesses as regards competitiveness, sustainability and long term job creation.

3. Reporting shadow economy activity

You can report (or report via your representative body) to Revenue details of shadow economy activity by using our Online Reporting Form. Alternatively, a report may be made by way of a telephone call to your local Revenue office.

June 2015

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