69. While past tax reforms have made Slovakia ́s tax system simpler and easier to obey, the system of tax collection has not kept pace, which makes it still cumbersome for taxpayers to comply. In Slovakia a typical firm needs 325 hours per year for the compliance of all business taxes while in Estonia only 81 hours are neded. As a result, Slovakia ranks much lower (126<sup>th</sup> ) with respect to paying taxes in the World Bank‘s Doing Business report than Estonia (34<sup>th</sup> ) despite similar tax rates. The government is now in cooperation with the World Bank preparing a reform of tax collection (UNITAS), which after full implementation (planned for 2014) will unify the collection of general taxes and social insurance contributions, as is already the case in Estonia and some other NM-EU countries (Hungary, Bulgaria, Latvia, Romania, and Slovenia).

# **8.3 The Case of the Czech Republic**

70. The Czech Rebublic appears to be among those NM-EU countries that have made some progress in containing undeclared work. Acccording to the Statistical Office, undeclared work in the Czech Republic was 9-10 percent of GDP in 2006/2007, the second lowest after Estonia, with no change in recent years. According to the business surveys for the IMD World Competitiveness report, in the Czech Republic tax evasion is a less important factor for hampering business activity than in the other NM-EU countries.

71. Some characteristics of the Czech economy and economic policy have helped to contain undeclared work. The relatively highly skilled workforce amd moderate wage policies with a view towards maximizing employment have eased structural adjustments. As a result, employment in the formal sector has - prior to the recent economic crisis - remained at a relatively high level, which reduced the pressure on workers to work informally. The relatively low unemployment during and after economic transformation has led people to speak of a ―Czech miracle‖.<sup>9</sup> 72. Although undeclared work may be less pervasive than in some other countries of the region it does exist in various forms (Münich, 2007). **Hanousek and Palda (2008)** have carried out regular surveys, asking people whether they evaded taxes and whether they expect others to do so. They find that in the Czech Republic between 1995 and 2006 the percentage of tax evaders first increased, then leveled off and then declined thanks to structural changes and better macroeconomic conditions. Underdeclaration of work is widespread among the self-employed, registered unemployed, and even among workers with regular jobs. Low skilled workers are more affected than higher skilled workers although tax evasion among the latter has also increased. Horáková and Kux (2003) also found that undeclared work is most widespread among the self-employed, small enterprises, low-skilled workers, and workers with secondary jobs. There is also anecdotal evidence of illegal employment of foreigners, notably from Ukraine. The sectors most affected by undeclared work are construction, agriculture, catering, retail trade, and textiles. In 2007 about 40 percent of all workers in the construction sector worked as self-employed and that over 150,000 of the self-employed workers in the construction sector could in principle perform their contracted work also as dependent employees. **Between one eighth and one fourth of all self-employment in the**

> 9 During the first phase of transition there was, however, also considerable ―hidden unemployment‖ of workers in state-owned enterprises who added little to production and kept registered unemployment at artificially low levels.

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