STATE LOSING UKP500 MILLION A YEAR TO 'BLACK ECONOMY'

THE STATE is losing UKP500 million a year to the 'black economy', with
drugs, prostitution and gambling taking the lion's share, according to a
recent study by AKEL economists, as part of a wider study on the black
economy in Europe.

A group of 15 officials from AKEL's Economic Research Office worked for
eight months on the 60-page study to expose the extent of the black economy
or 'non-observed economy' in Cyprus, which accounts for 9.2 per cent of the
Gross Domestic Product, translating into UKP486 million in non-taxed
revenue each year.

The study was split into three categories: the informal, underground and
illegal economy. According to main researcher, Soteris Yiokkas, the
'illegal economy' was the biggest and most dangerous category, generating
UKP221.6 million a year, with the bulk of the money linked to drug
trafficking (UKP136 million). Prostitution remains a lucrative illegal
business accounting for UKP40 million of the illegal economy, while illegal
afternoon private lessons rake in UKP20 million, gambling UKP18 million,
cigarette smuggling UKP9.2 million, pirating intellectual property UKP4
million, and illegal work by public doctors UKP1.5 million a year.

The 'informal economy' accounts for UKP138.4 million a year and includes
work done at the home, like selling agricultural products from the garden
or other small businesses. Revenue from the third category, the
'underground economy', amounts to UKP126 million and concerns legitimate
businesses that for various reasons do not declare their full revenue.

Yiokkas explained the extreme difficulty in getting solid facts on the
black economy given the nature of the business. For example, in calculating
the extent of the illegal economy, prostitution in particular, researchers
had to pop in to numerous bars, 'massage parlours' and cabarets, feign
interest in the illegal profession and extract information from the women
themselves.

"Unfortunately, we had to go up and down a few stairs," Yiorkkas admitted.
During these personal visits, researchers would pose as potential clients
and ask detailed questions like: "How many times would you go out with a
client in a week?" The study is part of a wider study on the black economy
in the European Union. "This is the first time the black economy is being
estimated in the EU. From the (mostly east European and former communist)
acceding countries, Cyprus' black economy has the second lowest proportion
in relation to GDP. Lithuania has the highest rate, with its black economy
equalling 21 per cent of GDP, while Slovenia has the least with five per cent.

However, in existing member states, Greece, Italy, Spain and Belgium, the
black economy accounts for over 20 per cent of their GDP levels, which is
much higher than most acceding countries, said Yiokkas.