The Czech Republic’s shadow economy accounts for nearly 14% of its GDP, representing approximately one trillion crowns annually in unregistered transactions and undeclared income. A recent study by Kearney Czech Republic, presented in Parliament, places the country at eleventh position among 27 EU member states.
While the EU average stands at 17.9%, with Austria leading at 7.2% and Bulgaria trailing at 33.5%, the Czech Republic performs slightly worse than neighboring Slovakia’s 13.5%. The shadow economy’s scope had been gradually decreasing until 2019, but the COVID-19 pandemic and the Ukraine war reversed this trend, pushing more people into informal economic activities.
Labor-intensive sectors such as manufacturing and construction contribute significantly to this underground economy, with 10-36% of activities going unreported. The hospitality and retail sectors show even higher rates, with up to 50% of income potentially undeclared. Small-scale service providers, including fitness trainers, nannies, gardeners, and house cleaners, form another significant segment of this hidden economy.
Digital payments are seen as a key tool in combating the shadow economy. According to Kearney’s director Jan Šarapatka, increasing digital payments by just one percent annually over the next five years could generate an additional five billion crowns in GDP and two billion in tax revenue.
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