Member States of EU lose billions in unpaid taxes from counterfeit and smuggled goods

Vilnius, Lithuania — The European Union and Member States lose billions in unpaid taxes every year from counterfeit and smuggled goods. Senior-level tax policy, tax administration and customs officials as well as academics, experts from Eastern European and other countries gather today in Vilnius for the two-day conference to address a range of issues involving the shadow economy. The International Conference on the Shadow Economy and Taxation is jointly organized by the International Tax and Investment Center (ITIC) and the Lithuanian Free Market Institute (LFMI).
“In every area of the world where strong price differentials exist between jurisdictions – largely driven by taxation – contraband can be encouraged. The European Union and Member States lose approximately €10 billion in unpaid taxes every year from counterfeit and smuggled tobacco products only”, says Daniel Witt, President of ITIC.
The eastern countries or the “new” European Union members, such as Bulgaria, Cyprus, the Czech Republic, Latvia, Lithuania and Poland have higher shadow economies than the “old” European Union countries, like Austria, Belgium, Germany, Italy, observes Prof. Friedrich Schneider (Austria), speaker of the conference.
“This conference is a unique opportunity not only to share good practice in tackling shadow economy, but to expand thinking on how to reduce the illicit activities as well, what is very important for Lithuania and the whole region. It is a good platform to develop proposals how cross government and international cooperation, public-private initiatives can strengthen the forces fighting the shadow economy in order to benefit economic development”, says Žilvinas Šilėnas, President of LFMI.
The conference brings together revenue and customs authorities and policy makers from the EU Member States, World Customs Organization, Interpol, Europol, renowned academics, private sector and industry experts. Among speakers Antanas Šipavičius (Lithuanian Customs), Elizabeth Allen (ITIC), Prof. Louise Shelley (George Mason University), Carlo van Heuckelom (Europol), Dr. Nerijus Mačiulis (Swedbank), Simone Di Meo (Interpol), Vytautas Žukauskas (LFMI), Katarzyna Banaszek (World Customs Organization) and other.
Various researches show, when excise tax levels become excessive, consumers willingly purchase cheaper illicit products to save money. Recent study of LFMI on public attitude towards smuggling and consumption of illegal goods (for fuel, alcohol products and cigarettes) in three Baltic States showed that citizens see large price differences between the Baltic and non EU neighboring states as one of the main reasons determining smuggling, as mentioned by 50% of Latvians, 55% of Estonians and 46% of Lithuanians.
“Smuggling is not just a matter of border security. It is tightly related to the burden of excise tax, general economic situation in the country, public attitudes. Therefore, the most effective ways to combat shadow economy are ones which are directed towards reducing incentive to operate in the shadow economy”, claim Vytautas Žukauskas, LFMI senior expert. According to recent representative survey of LFMI, 84% of Latvians, 83% of Lithuanians and 76% of Estonians say that the most effect measure to combat smuggling is to reduce taxes (excise).

The conference is being jointly organized by the International Tax and Investment Center (ITIC) and the Lithuanian Free Market Institute (LFMI). It aims to focus on the nature, extent and implications of the shadow economy and illicit trade for the region and to expand thinking on how to reduce the illicit activities. ITIC is a nonprofit research and education foundation, has worked on tax policy and administration issues throughout Eurasia since its founding in 1993. LFMI is a private non-profit non-partisan organization established in 1990 to promote the ideas of individual freedom and responsibility, free market, and limited government.