Legal Definitions - black economy

The black economy, also known as the shadow economy or underground economy, refers to economic activities that operate outside the official oversight of government authorities. These activities are typically hidden to avoid paying taxes, circumvent regulations, or bypass labor laws. While some activities within the black economy might be entirely illegal (like drug drug trafficking), the term often encompasses otherwise legitimate goods and services that are simply not reported to the government.

Here are some examples illustrating the black economy:

• Example 1: Unreported Freelance Income

  A freelance graphic designer regularly completes projects for clients but insists on being paid in cash or via direct, untraceable transfers. The designer then does not declare this income to the tax authorities.

  How it illustrates the term: This scenario demonstrates the black economy because the designer is providing a legitimate service but intentionally concealing the income to avoid paying income tax and potentially other business-related taxes or fees. The economic activity is happening, but it's invisible to the official financial system.

• Example 2: "Under the Table" Wages

  A small landscaping company hires several seasonal workers and pays them entirely in cash, "under the table." The company does not report these wages to the government, nor does it deduct payroll taxes, social security contributions, or provide worker's compensation insurance.

  How it illustrates the term: This is an example of the black economy because the company is avoiding its legal obligations related to employment, such as payroll taxes and worker's compensation insurance. The workers' wages are not officially recorded, meaning the government loses out on tax revenue, and the workers themselves lack the protections and benefits associated with formal employment.

• Example 3: Unregistered Online Sales

  An individual regularly purchases goods from a foreign supplier and resells them online through social media groups and private messaging apps, accepting direct bank transfers or cash. They do not register as a business, obtain necessary permits, or report their sales income to tax authorities.

  How it illustrates the term: This demonstrates the black economy as the individual is engaging in commercial activity with the intent to profit, but they are operating entirely outside the formal business and tax registration systems. By not reporting sales or profits, they avoid paying sales tax, income tax, and potentially import duties, making their prices artificially lower than compliant businesses.