Malta is believed to have one of the biggest black economies among the 17 eurozone member states, new estimates compiled by the EU reveal.

In 2010, Malta’s black economy, technically referred to as ‘the shadow economy’, was conservatively estimated to reach 26 per cent of GDP or €1.6 billion. This means that more than a quarter of Malta’s economic activity is being kept underground with serious consequences to the public exchequer and taxpayers.

According to the EU’s study, compiled through various sources using a technical calculation, Malta had one of the largest black economies in the euro area.

The study, ‘Tax reforms in EU member states’, admits it is difficult to calculate “precisely” a country’s shadow economy and so these estimates are on the “conservative” side, indicating that the real black economy is even much bigger.

Malta’s official GDP in 2010 amounted to €6.2 billion although if the shadow economy is to be added, the island’s GDP is in reality much higher. A mere 10 per cent tax proceeds from the black economy would result in an additional €160 million into the Maltese national coffers – enough to considerably slash the deficit and debt.

Normally, Malta’s tax burden on all economic activity surpasses the 20 per cent benchmark.

“The shadow economy is a global phenomenon and one cannot completely eradicate it,” an EU official told The Sunday Times.

“However, measures can be taken to lower illegal economic activity and Malta can definitely do more in this direction. At the end of the day, the shadow economy is loss of revenue to the state’s coffers, which will then have to be raised through those who pay their taxes legally,” the official said.

According to the EU, Estonia has the largest black economy in the eurozone, standing at 29.9 per cent in 2010, followed by Cyprus at 26.6 per cent.

Although the Mediterranean culture is normally associated with a lower tax conscience than the rest of Europe, Greece (25.2 per cent), Italy (22.2 per cent) and Spain (19.8) all have lower levels of black economy than Malta.

On the other hand, the lowest tax evaders seem to be the Austrians (8.7 per cent of GDP) and the Luxembourgers (8.8 per cent).

In its report, the study recommends various measures that can be taken by the national authorities to try to limit tax evasion as much as possible.

It proposes, among others, a tax system which should be as neutral as possible with regards the source of revenues to minimise interference in the allocation process; a better quality of governance and better understanding of taxpayers’ behaviour; and effective enforcement activities which depend on the resources put into detecting breaches of the rules, the penalties associated with violating rules, and the extent of corruption in the enforcement process.