The Best of GRReporter
flag_bg flag_gr flag_gb

Why it is still profitable to evade taxes in Greece

08 July 2013 / 21:07:53  GRReporter
2611 reads

Income concealment and tax unfairness were some of the most discussed problems of the Greek economy even before the economic crisis. Tax unfairness in Greece cost the state 27% of GDP whereas the average value established in the member states of the Organisation for Economic Cooperation and Development (OECD) is much lower and does not exceed 20.2%. However, according to the experts, the problems of tax unfairness are the consequence of specific characteristics of the legal structure of Greece and the economic model that it has been applying.

The economic analysts of Alpha bank state that the difference in the rate of tax unfairness between Greece and the other developed countries is due to the number of employees in the liberal professions. If the self-employed in European Union countries are 14% of the labour force on average, their percentage in Greece is 35%. Tax control and cross checks in this group of employees are very difficult as these are small companies such as sole traders and this involves a series of transactions with individuals whom it is difficult to require to present documents for services rendered.

The most common violations by the self-employed have been registered in the fields of tourism, agriculture, construction and trade.

Two other factors that are making the situation even more difficult are the high rate of unemployment that is pressing the labour market and the general lack of tax consciousness as stated by the experts. While the latter is cultivated mainly by the state through the strict application of the law, the first condition is the result of the deteriorated situation in the labour market.

The data show the following: one in three employees is working without a contract, without paying taxes and social security contributions and many employers, today more than ever, are taking advantage of the lack of control, compelling the employees to accept the unacceptable work conditions to retain their job.

In Greece, doctors, lawyers, tutors and engineers often declare in their tax returns incomes close to the non-taxable minimum. However, the reality is different. According to the report on the state of the Greek tax system, commissioned by the International Monetary Fund in 2012, the real income of the people from the professional groups previously mentioned is actually 2.5 times higher than the income they declare to the tax service every year.

The experts think that the high level of non-payment of taxes in Greece is due to the fact that the benefits of tax evasion are higher than the possible penalty that could be imposed in establishing the violation.

The tax rates in Greece are some of the highest compared to the rates in the OECD member countries. The difference between the net and gross pay in Greece is 43% whereas it is 26% in the other countries of the OECD on average. The VAT on a range of goods and services is significantly higher than in other countries too, and the ineffective government control makes it almost impossible to detect the irregularities.

Therefore, the restructuring of the tax administration and the simplification of the tax code are some of the immediate measures required by the representatives of the lender's Troika of the International Monetary Fund, the European Central Bank and the European Commission. The income tax, property tax and the tax code have been reformed, and it is expected that the new rules will take effect next year. Although steps have been taken to make the revenue administration autonomous, there are still problems in the functioning of the system.

According to the report of the supervisory Troika, the lenders and the government have largely agreed that the Greek recovery programme is being implemented as planned. It provides for primary balance in the budget this year and for gradual return to economic growth in 2014. "The outlook (of the plan) remains uncertain," states the report of the Troika.

In addition to improving the revenue, the biggest challenge for the government now is to deal with the reduction of the public sector. This is a task that no one wants to address but it must be completed in order for Greece to continue receiving the financial aid. After a series of proposals, the government should apply the mobility programme.

The supervisors note that the recapitalization of the banking sector is almost complete. The authorities have committed to further steps to safeguard financial stability, including through the sale of two bridge banks as stated in the report. According to the Greek analysts, the lenders predict that, by the end of the year, the government will sell the two state banks, namely Postbank and Proton Bank, to complete its strategy to build a four-pillar banking system as scheduled.

"These reforms are a further important step towards facilitating adjustment and enabling growth. The mission also discussed with the authorities the progress in strengthening the social safety net, including through targeted employment and training programmes supported by the European Union and a programme to provide access to primary health care for the uninsured."

Tags: EconomyMarketsTax fraudsTax unfairness
GRReporter’s content is brought to you for free 7 days a week by a team of highly professional journalists, translators, photographers, operators, software developers, designers. If you like and follow our work, consider whether you could support us financially with an amount at your choice.
You can support us only once as well.
blog comments powered by Disqus