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Greece - Tax Evasion

The latest available data on tax declarations show that 94% of personal income declared relate to annual incomes less than 30.000 euro, with only 3000 people declaring incomes above 200.000 euro. Recent EU reports show that in Greece 30% of VAT receipts remains uncollected, the highest percentage in the EU and 2,5 times higher than the EU average. This narrow tax base and low tax receipts are due to extensive tax avoidance and tax evasion, to specific tax rules and exemptions, a lack of appropriate tax monitoring and control mechanisms, as well as to the absence of strong incentives for tax compliance combined with lack of transparency.

In a closely-watched speech to domestic employer associations, labor unions and political party representatives on 14 December 2009, Prime Minister George Papandreou outlined his government´s plan to help correct Greece’s excessive deficit by the end of 2013 and win back the trust of European Union partners. Papandreou emphasized his government´s strong commitment to fight corruption and clamp down on widespread tax evasion. (According to some estimates, the size of the grey economy in Greece may be higher than 30%- of-GDP, with the PM admitting yesterday that illegal fuel trade alone probably exceeds €10bn per year). To that end, the government plans to utilize a host of measures, ranging from a specialized tax squad and the electronic cross checking of retail trade receipts to the electronic connection of local tax and urban planning agencies with the state’s general accounting office. In an effort to make the fight against corruption and tax avoidance a national priority, Mr. Papanderou met yesterday with other political leaders to reach a minimum consensus on the proposed reforms. President Carolos Papoulias himself chaired the meeting.

Following Prime Minister Papandreou's address to social partners on Monday the 14th of December, on 18 December 2009 Finance Minister George Papaconstantinou unveiled the main elements of the government plans to overhaul the tax system. The point of departure for the tax reform is the current deficiencies of the Greek tax system. During this decade the tax receipts have declined by 3 percentage points of GDP and are now standing at 19% of GDP, the fourth lowest percentage in the EU-27. The contribution of tax receipts to total government receipts stands at 49% and is the second lowest in the EU-27. Direct taxation stands at 8% of GDP, a full 5 percentage points lower than the EU average.

The government's goal is to address these deficiencies through changes which radically overhaul the tax system in order to make it simpler, more transparent, more effective, and give citizens a real sense of fairness and justice. The changes underway relate to personal taxation, enterprise profits, property, specific measures to combat tax evasion as well as a drastic overhaul of tax management and audit practices.

In personal taxation the government has announced the abolition of all autonomous taxation and tax exemptions, the taxation of all income on the basis of a unified progressive indexed tax scale, the tax treatment of distributed profits as personal income, the imposition of a capital gains tax as well as the generalization of a system of declaration of all information concerning revenues as well as assets and wealth. Large estates will be taxed with a progressive tax scale.

At the same time regarding enterprise taxation, the government has announced the codification and drastic simplification of tax statutes, more preferential tax treatment for reinvested profits, more effective transfer pricing and thin capitalization tax rules as well as an obligation for keeping professional enterprise accounts in banks with access by tax authorities.

Finally, concerning the effective functioning of tax administration and tackling fraud, the government announced the implementation of a system of auditing based on statistical sampling techniques, a large scale introduction of electronic tax services, new IT -based monitoring of transactions in order to combat fraud in customs and excise tax, as well as the obligation for public dissemination of information concerning tax declarations regarding income from commercial enterprises and the free professions.

The Greek Parliament on 15 April 2010 approved the Socialist government's long awaited new taxation code, which aims to boost government revenues to curb excessive deficits, stamp out tax evasion and fulfill the country's obligations under the three year growth and stability plan approved by the EU. It also imposed objective criteria for assets and expenditures on all income tax payers in an attempt to recover what some Greek economists assess as EUR15 billion a year in lost revenue from tax avoidance. That would fill almost half of the budget's "black hole" in the debt-strapped nation.