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. Last Updated: 07/27/2016

Croatia Aiming for a Whiter Economy

DUBROVNIK, Croatia -- Dazzling cruise ships are anchored in the azure waters off the stone-walled port and tourists throng the narrow marbled alleys of this medieval city.

Dubrovnik, a fortress port in the southern Adriatic, is recovering after it fell off tourists' radar screens following Croatia's 1991-95 war of independence.

Since the war, Dubrovnik has been rebuilt and its hotels restored to their former splendor, making the city Croatia's most prestigious tourist destination.

But Dubrovnik also showcases some of the problems bedeviling the tourism industry as the grey economy, tax evasion and semi-legal hotel services nibble away at revenues. The grey economy, which illegally employs 100,000 people, is believed to suck up between 20 and 25 percent of Croatia's tourist income.

Tourism is the main hard currency earner and, with revenues of around 6 billion euros ($7.7 billion), it accounts for 20 percent of gross domestic product.

But many private tourist businesses here operate illegally. Or, if they are formally registered, they don't declare all their guests to avoid paying taxes.

"In the summer, the behavior of some of those who offer private accommodation is really shameful. For instance, they gather at the bus station and pull tourists' sleeves to lure them to stay in their houses," said Tonci Skvrce of the Dubrovnik tourist board.

Analysts say the grey economy accounts for up to 15 percent of the European Union candidate country's total GDP, which grew by 4.3 percent in 2005 to 229 billion kuna ($40.15 billion).

Last year, the government vowed to crack down on the grey economy, reintroducing financial police to control the payment of taxes and other duties.

Dubrovnik's tourist authorities are spearheading their own crackdown.

"We plan to divide private accommodation owners into six city sectors and mark them on a display at the bus station so the tourists can know who runs a legal business," Skvrce said.

The display would clearly state how far from the sea each house is, so guests would not be misinformed. It would also show which places had vacancies and would prevent hotel owners from grabbing potential guests for a face-to-face hard-sell.

"This is an original idea and we hope it will work. The state inspectorate and police are quite content," Skvrce said.

Croatia has some 50,000 registered small private hoteliers, each offering up to 20 beds. Some foreigners who own houses on the Adriatic coast also offer accommodation but, according to the tourism ministry, not necessarily legally.

Tackling the grey economy is also important for Croatia's bid to join the EU. Brussels will want Croatia to include the grey economy in its GDP estimate when discussing disbursement of structural funds, after Croatia becomes a member, most likely in 2010.