In the last week before Christmas the Greek Parliament instituted discussion of a new tax law reform. In a written statement on the Internet as early as 18.12.2009, the government published the key measures from the new tax policy and presented them to Parliament on 22.12.2009. The aim of the tax reform is to introduce a fair and efficient tax system, which is intended to simultaneously improve or even eradicate the weaknesses and defects in the tax system which has prevailed in Greece to date.
The following government findings paved the way and were decisive for the major tax reform in Greece:
- Low public revenues, which are disproportionate to government expenditure.
Whilst revenues (as a percentage of GNP) have steadily declined in recent years, from 40.9% to 37.3% in 2009, between 2001 and 2007 annual public expenditure averaged approximately 45% and over the last two years rose to 48.3% of GNP in 2008 and 50.1% of GNP in 2009. Public revenues, on the other hand, were 40.6% of GNP in 2008, and 37.3% in 2009.
- The fall in tax revenues, which have also declined since 2001 (at 21.8% of GNP) and were only around 19% in 2009.
It must be noted at this juncture that tax revenues and insurance contributions represent the biggest, permanent source of government revenues. Add to this the fact that, in relation to other Member States‘ revenues, the Greek state’s revenues from taxes are amongst the lowest in the EU. Government tax revenues from natural persons and legal entities in particular are amongst the lowest in the EU zone in proportion to and as a percentage of GNP.
- The clearly increasing tendency for natural persons to contribute proportionally more to State taxes than legal entities.
In 2007 taxation of natural persons accounted for 4.7% of GNP, whilst in the same year the rate for legal entities was 2.6%. In addition a study in Greece has shown that the Greek tax-payer pays €1.56 in indirect taxes for every 1 euro of direct taxes.
On the other hand it has been established that 85% of tax returns from natural persons in Greece relate to families whose total income is below the €30,000 income threshold. And 94% of personal incomes declared annually by natural persons are also below the €30,000 income threshold.
- Profits lost from value-added tax, which exceed 6.6 billion euros.
The main cause is tax evasion. Greece leads the EU with a figure of 30%.
- The fact that the majority of tax revenues come from a small section of tax payers (middle-income workers).
This is why there is a need to extend the income basis for tax revenues.
The fundamental causes of the actual loss of tax revenues in Greece are:
- Far-reaching tax evasion and tax avoidance,
- The conflicts in Greece’s tax system (aimless tax exemptions, uniform taxation, etc.),
- Defective control mechanisms,
- Absence of strong motives and incentives for tax-payers to disclose their actual taxable incomes,
- Limited progressiveness in taxation scales,
- Factors which lead to falling tax awareness, e.g. transparency, complexity and complicated nature of the system, low quality public assets and services.
Taking into consideration the causes of the above weaknesses and defects in the Greek tax system, the Greek government now intends to undertake a fundamental reform of the tax system, intended on the one hand to reduce Greece’s deficit in the EU and on the other to reinvigorate the Greek economy. The aim of the reform policy is to create a tax system which stands out because of the following characteristics.
- Fairness: Every taxpayer should make the same contribution according to his means.
- Redistribution: Income should be redistributed for the purposes of an efficient increase in public incomes, but there should be no additional burden on low and middle income earners.
- Efficiency: Through the creation of motives and incentives encouraging taxpayers to disclose their actual taxable income.
- Creation of productivity without conflicts.
- Simplicity without creating higher administrative costs for citizens.
- Transparency: The citizen’s trust in the State should be restored.
Areas for and emphasis of reorganization of the Greek tax system
- The following action is to be taken with regard to taxation of natural persons:
a) Introduction of a single, progressive tax scale geared to the cost-of-living index for all incomes,
b) Taxation of corporate dividends according to the tax scales for natural persons,
c) Abolition of uniform taxation,
d) Abolition of tax exemptions,
e) Generalization of proof of assets (origin principle) in tax returns,
f) Accounting determination of income,
g) Introduction of a system to deduct receipts for goods and services from taxable income,
h) Taxation of the added value of long-term stock market transactions (speculation gains) through simultaneous offsetting of damage and losses incurred.
- The following modification will be introduced for corporate taxation:
a) A distinction is to be made between distributed and retained profits,
b) Abolition of tax exemption/tax breaks for companies,
c) Abolition of the law „On keeping of books and data“ (KBS),
d) Imposition of the obligation to keep business accounts with banks, connection to the tax authorities‘ data systems and creation of an access option for the tax authorities,
e) Taxation of transactions with offshore companies,
f) Efficient monitoring of all transactions within a group of companies.
- The following measures are to be introduced where taxation of real estate is concerned:
a) Implementation of progressive taxation for major property owners from 2010,
b) Reintroduction of inheritance tax and tax for what are known as parental gifts, with a higher tax-free sum,
c) Efficient taxation of offshore properties.
- Finally there is provision for the introduction of tax administration and control mechanisms to combat tax evasion:
a) Creation of a software program for purposeful auditing and execution of tax audits on the basis of known data,
b) Verification of the origin of assets for all tax officials and introduction of measures against officials whose assets cannot be justified by their income. These measures will extend to dismissal of the official from office, but will start with the official being suspended,
c) Electronic tracking and monitoring of the fuel market for the purposes of combating the black market,
d) Electronic and technological support for tax management,
e) Expansion of services and systems for electronic administration on the Internet for the purpose of providing additional services for taxpayers,
f) Publication of the income and taxes of businesses and freelances in the Internet according to the provisions of Law 2238/1994.
The new law, which will regulate all these tax measures, is supposed to be passed as early as March 2010.
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