This week, Statistics Canada released a report estimating the value of Canada’s underground economy to be $45.6 billion in 2013 — equivalent to 2.4 per cent of GDP. This staggering figure made me wonder if I personally was partially responsible.
You see, for years, I’ve had an ethical quandary. When visiting a local bakery or convenience store to buy a single item using cash, the cashier tells me the price, often including the sales tax where applicable, and hands me my change without ringing the item into the cash register. If the cashier is merely an employee and not the shop’s owner, there’s a good chance he is simply pocketing all that untracked cash at the end of the day or, to put it bluntly, stealing.
While part of me wants to force the cashier to ring in my transaction so the owner doesn’t get ripped off, the other part of me wonders if the owner is too naïve to know what’s going on, is it my ethical responsibility to police the owner’s employees. A simple solution exists in many chain restaurants, which post a sign on the cash register saying if you don’t get a receipt, your meal is free. This encourages most sales to be rung through the register and tracked.
But the bigger issue comes when the owner is behind the register and pockets the cash without ringing in the sale. The owner is also stealing, but in the case, she’s stealing from me and from you, the Canadian taxpayers, as it’s unlikely this sale will be included in her income for tax purposes come reporting time. I’ve even seen shop owners collect the sales price, plus 13 per cent HST, and not ring that through the register. In other words, I’m paying my tax, but it’s more than likely the government isn’t seeing a cent of it.
Of course, to solve my ethical dilemma, I could simply choose to pay with a debit or credit card, instead of with cash, assuming the retailer accepts such forms of payment for relatively small purchases. Not surprisingly, cash is a major facilitator of the underground economy.
The report, commissioned by the Canada Revenue Agency, does not provide an estimate of the total amount of taxes that are not reported and paid, known as the “tax gap.” But it does shed light on the trend of the underground economy as a percentage of GDP for Canada and its provinces and territories. The report shows that while the underground economy, as a share of Canada’s official GDP, has remained stable over the last decade, it increased 3.8 per cent from 2012 to 2013, the same rate of growth as GDP.
The research also highlighted that four sectors accounted for nearly two-thirds of the total estimated underground economy: residential construction (28 per cent); finance, insurance, real estate, rental, leasing and holding companies (13 per cent); retail trade (13 per cent); and accommodation and food services (12 per cent).
As the CRA stated, participation in the underground economy hurts all Canadians, including responsible citizens and businesses that pay the correct amount of tax. The CRA encourages Canadians to report suspected tax evasion through their website or by contacting its National Leads Centre. Your identity won’t be disclosed, or can you can choose to report anonymously.