Shadow Economy Estimated at Over 20 Percent of GDP

Israel’s shadow economy is estimated at between 20 to 25 percent of GDP, or 200 billion shekels, Globes reported on Sunday, citing reports from the Israel Tax Authority and The Bank of Israel.

Based on that estimate, the annual loss in tax revenues due to illegal, unrecorded transactions comes to roughly 40 to 50 billion shekels.

Governmental regulators have trying to combat the shadow economy by restricting the use of cash; for example, the Reducing the Use of Cash Law restricting the use of cash between private individuals; and strict international regulation that bars banks from accepting unreported money.

But a preference for cash persists. In Israel, cash accounts for 26 percent of total daily spending, compared with 38 percent using credit or debit cards. Median daily cash spending is NIS 46.

Certain transactions tend to be conducted in cash more than others. A BoI survey found that the three types of spending in which cash is preferred are: tips (79 percent), taxicab rides (73 percent), and giving money to a relative (69 percent).

In addition, 47 percent prefer to pay a private doctor in cash to avoid paying VAT and as a means of laundering money. Some 41 of respondents said they prefer to pay for lunch at a restaurant in cash.