SHADOW ECONOMY IN THE HOSPITALITY INDUSTRY. WAYS OF IT’S EDUCE IN UKRAINE

Abstract

This article aims to identify factors influencing the shadow economy of the Ukrainian hospitality industry and to offer ways for its reduction. The result of the research has shown a high level of the shadow sector in the Ukrainian hospitality industry. This is facilitated by many factors but the most significant of them are high social security contributions and hefty taxes. The analysis reveals that the level of expenditures in the hospitality business is the highest, with the average salary being the lowest among considered sectors of the economy. This indicates that the sector is very labour-inten-sive, which contributes to an increase in tax burden and, as a result, an increase in the informal hospitality sector. We propose the main directions for reforming the tax system to reduce the level of the informal economy in the hospitality industry. Ukraine needs to introduce preferential VAT rates for the hotel business, and the accommodation sector needs more reduction of the standard rate. The practice of paying the tourist tax also needs to be reformed. According to the current legislation, the payers of the tourist tax are tourists, and the tax agents are the business entities of the accommodation sector, which are mostly "in the shadows". As a result, a significant part of tourists does not actually pay the tourist tax. The introducing a mechanism for paying the tourist tax, which would allow all tourists to be taxpayers, would create an opportunity for better financing and development of the tourist destination. To legalise the shadow sector in the hospitality industry it is also necessary to reduce the single tax rate for small busi-nesses in this area. Such actions will not be associated with large losses for the budget. In addition, the experience of other countries shows the positive consequences of using this approach.