“So you want to pay VAT?"

“OK, so you want to pay VAT?” The question and slightly crooked smile which spread across his face made me wonder. An invitation? Undeclared work?

There is fierce debate in the Nordic region about how to stop the labour market’s rules being undermined by offers of undeclared work and cheap labour. But it was a simple service. An agency had cleaned my flat before new owners moved in. VAT means 25 percent tax comes on top of what the cleaners are asking for the job. 25 percent can feel like a lot, so don’t declare it?

Had I been living in Sweden I would not have to pay more than half the VAT. The previous government introduced the so-called RUT deduction in 2007, allowing for a tax break for such services. Both RUT and ROT are explained in this month’s theme which explores Nordic strategies for combating the shadow economy.

The Swedish tax deduction was inspired by a Finnish system which was assessed in 2004 and found to be successful, creating many new jobs. In Sweden the tax rebate seems to have changed attitudes to undeclared work. Compared to before it was introduced, three times as many Swedes are now negative to undeclared work. Nevertheless, the government wants to reduce the measure.

Nordic citizens are largely positive to paying taxes as long as we feel they are fair, and that we are pulling together. 

“The question is whether you want to cheat or contribute to society. This is linked to trust in politicians and that they manage our money in a good way,” says Swedish Katarina Nordblom who has been studying the shadow economy.

The Danish government is considering introducing a system similar to the Swedish one, allowing for tax deductions on renovations and maintenance. At the same time it wants to limit the tax authorities’ right to control undeclared work in order to protect people’s privacy. Private gardens and work carried out in privat homes will be off limits for controls. 

In Norway the controls are being increased, however. Different authorities are co-operating with the social partners, backed by public awareness campaigns as part of the government’s 22 point strategy for fighting the shadow economy. So far there are no plans for introducing tax deduction for household services in order to stop undeclared work. 

Attitudes do not exist in a vacuum. When I saw the crooked smile it made me wonder. Undeclared? And where would the VAT go if I paid? I took the chance, hoping he had understood the dynamics of our common society. 

“Yes, with VAT.”

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