Importance Currently, many EU countries are facing an increase in social security expenditures. It entails an issue of tax collectability that has become really challenging. As a solution to this matter, some EU countries imposed restrictions on the use of cash. The article investigates a possibility of restricting cash payments as one of the solutions to issues of the shadow economy and collection of taxes. Objectives The research evaluates the effect of non-cash payments on the shadow economy. The research also analyzes the regulatory framework for restricting the use of cash in making deals in the EU. Methods I analyze experience of the EU countries in restricting cash payments. As part of the research, I examine legislative regulations governing cash restrictions. Results I identify that there is an inverse relationship between an increase in non-cash payments and the extent of the shadow economy. In most European countries, non-cash payments grow since cash payments were legally limited. I find out that most European countries have similar approaches to regulating this matter. Activities, which the EU performs to reduce the shadow economy and improve tax collectability, may be carried out in other nations where the shadow economy is much bigger. Conclusions and Relevance Relying upon the EU experience, I show that legislative restrictions of cash payments contribute to increasing economic transparency and tax revenues. Notwithstanding similar approaches, there are still differences in legal regulations of the EU countries (an amount of charge, controlling authorities, sanctions for violation of laws).
Keywords: taxation, shadow economy, legal regulation, European Union
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