De-shadowing mechanisms for wholesale and retail trade services

Abstract

The main reasons and sources of the spread of shadow operations in wholesale and retail trade in Ukraine are studied. The paper reveals that tax evasion and unaccounted trade operations with smuggled and counterfeit products are the most common types of shadow activities in trade in services. Entrepreneurs and citizens most often use the shadow schemes in the process of buying and selling goods due to gaps in the system of institutional regulation, as well as due to the imperfection of fiscal policy. At the same time, the most threatening are the growth of institutional dysfunctions and the spread of various forms of opportunistic behavior. They generate institutional mutations in the wholesale and retail trade business, as well as in the system of control over the trade activities. A number of new approaches to the implementation of national and regional economic policies aimed at de-shadowing wholesale and retail trade services are suggested. The priority directions and mechanisms of wholesale and retail trade de-shadowing in Ukraine in accordance with the existing challenges are outlined. Particular attention is paid to the need to generate a modern business culture of wholesale and retail market participants, as well as its digitalization and development of e-commerce. Important means of de-shadowing also include the intensification of cross-sectoral and municipal-private partnerships, increasing the level of transparency and efficiency of regulatory institutions, modernization of trade infrastructure, and fiscal liberalization. The paper offers a range of recommendations for public authorities and local governments about priority areas and principles for improving the institutional support of wholesale and retail trade in order to de-shadow it, including the need to normalize the work of the institute of individual entrepreneurs in trade, to change the method of collecting personal income tax and bring its value closer to the single tax rate for entrepreneurs, and to improve the quality of human and social capital.