Last week, StatsCan released new underground economy (UE) estimates for Canada. They’re based on activity from 1992 to 2009.
The CRA commissioned these estimates as part of its ongoing effort to increase knowledge about the Canadian UE, about the different industry sectors involved, and about how it impacts the country’s growth.
The estimates reveal, “Total underground activity in Canada was estimated at $35 billion in 2009, an increase of 77% from 1992, whereas nominal GDP grew by 118% over that same period. This estimate was equivalent to 2.3% of GDP in 2009, which is down from 2.9% in 1992.”
The agency says UE growth has decreased in Canada due to the slower growth of the industries traditionally involved in underground activity. They’re not outpacing the overall economy.
These industries include construction, retail trade, and accommodation and food services. Though the majority of sectors are involved to some degree, these three accounted for 61% of total UE activity.
Overall, StatsCan’s findings “are not estimates of the total amount of taxes not being reported and paid—commonly referred to as the tax gap. Instead, the main purpose of this study was to provide information on the overall UE trend in relation to Canada’s gross domestic product (GDP), as well as on the trends for specific industry sectors of the economy that are more at risk for UE.”
The CRA plans to analyze this information along with additional data on unreported income and on the tax compliance behaviour of businesses across the country.
The agency says, “The resulting analysis will support the development of targeted strategies to enhance compliance with Canada’s tax laws, and help direct the CRA’s resources to industry sectors of the economy at highest risk for UE activity.”
It adds, “Participation in the underground economy hurts all Canadians, particularly at the expense of all responsible citizens who contribute their fair share [during tax season]. Those who avoid paying taxes are taking money needed for important investments in schools, hospitals, and other vital government services.”