Greek nightclub basements turn focus of tax-evasion dragnets

It’s Saturday night going on Sunday morning at a club near the gated homes of the Greek elite in northern Athens as two men and a woman in business suits push through the crowd and demand to see the cash register.

The manager sighs. It’s the tax man.

The inspectors are the new face of Greece’s fight against an age-old problem of tax evasion. Their mission: to check whether the club has given customers automated receipts that allow officials to track sales. In Greece, clubs, bars and restaurants have often avoided that paper trail to understate their revenue and reduce income and sales-tax payments.

As the country capitalizes on its first bond sale in four years and weans itself off 240 billion euros ($331 billion) in international loans, the authorities still must prove they can collect enough taxes to survive without aid. Even performing the most basic of state duties means overturning a tax-dodging culture rooted in centuries of occupation by Ottoman Turks followed by decades of apathy by the Greek state.

“Our controllers have gotten chairs thrown at them,” Hara Mavridou, Greece’s deputy general director of tax audits and public-revenue collection, said in an April 8 interview in her office in downtown Athens. “We want to be tough with those who break the rules and we want a light touch for those who follow the rules to encourage them.”

History and Politics

The scale of the shadow economy illustrates the potential for Greece to transform its finances by clamping down on tax evasion. Undeclared activity was 24 percent of output in 2012, compared with a European Union average of 15 percent, and concealed work averaged 25 percent between 1995 and 2006, the EU says. Even government officials recognize the problem had become endemic.

“Historical and political factors, including a weak state, gave rise to widespread tax evasion in Greece,” said Aikaterini Savvaidou, a government adviser and tax-law lecturer at Aristotle University in Thessaloniki. “For many years, Greeks knew they could get away with it. That’s slowly changing as the law and government controls improve.”

The benefits are so promising — and the challenges so daunting — that the EU and the International Monetary Fund have offered an array of technical help on financial management. As Greece seeks to emerge from a six-year recession, they’ve praised the country’s progress while stressing the need to do more.

Bailout Condition

The focus on revenue follows a slew of changes in fiscal legislation since 2010 designed to facilitate compliance with, and enforcement of, the laws. These include an overhaul of the rules for taxing transactions, a new income-tax code, a consolidated tax-procedures code and a broader real-estate tax.

The public face of the collection campaign is Mavridou’s boss, Haris Theoharis, a British-educated software engineer who is Greece’s secretary general for public revenue. His post was created in early 2013 as a condition of Greece’s bailout by the euro area and the IMF.

Theoharis says Greek tax revenue is already increasing this year because of improvements in information technology, better training of staff and more centralized control over regional tax offices, which have dwindled to about 120 from 300 as part of cuts to Greece’s public sector. Government income in the first quarter was 12.7 billion euros, 3.1 percent higher than the year earlier period.

“We are making all the changes at the same time,” Theoharis said in an April 7 interview in his office two floors above Mavridou’s. “In some respects, that is a positive result of the crisis.”

Avoiding Eye Contact

Theoharis’s staff has overseen about 2,000 on-the-spot audits a week since November at nationwide targets ranging from doctors and lawyers to shops and restaurants.

Bloomberg News observed about 20 surprise inspections in Athens over a recent weekend on the condition that the names of the targeted businesses, the people involved and their precise locations were withheld. The missions showed both how much the Greek government is doing to tackle tax evasion and how far Greek society still has to go to accept the crackdown.

At the club in Athens’s affluent northern neighborhood, the staff members keep serving drinks and try to avoid eye contact as the inspectors stand at the bar and the manager prints a list of the night’s sales. The boss suffers an anxious half-hour wait as the officials, with dance music blaring, retreat to a table near the toilets to study the papers before concluding there’s been no violation.

Squeeze

Earlier that night, the manager at a packed bar nearby was quizzed for an hour in his basement office, phoning his sister to help locate the files that showed he wasn’t cheating the state.

Since 2009, Greek workers have seen their incomes slump 33 percent while government revenue rose to 46 percent of GDP from 38 percent, matching the EU average. That squeeze adds to mistrust of tax officials.

The day after the nightclub audit, three different inspectors visit a cafe nearer the city center where families are out for an early-afternoon stroll. While none of the tables with customers has receipts that by law must accompany each delivered order, the till shows that all but one of the orders have been registered.

When the team decides to impose a 250-euro fine for the order that hadn’t been rung up, disregarding all the receipt- less tables, the manager still alleges injustice. She says she’s stolen nothing from the government and spreads the cash from her till out on the counter to show how little she’s made.

Neighborhood Alerts

As the controllers leave, a retired tax official in the area turns up to lobby for the manager. He tells the inspectors they’ve just punished one of the most upright locales in the neighborhood.

Petros, the owner of a bar near central Athens who asked that his last name be withheld, says he rings up about 90 percent of orders and conceals one shift a week for most of his seven-member staff because otherwise sales tax and social- security costs would force him out of business. The bar’s previous owner declared much less, he adds.

“To be viable, you have to manipulate the numbers,” Petros said in an April 8 interview at his bar. To keep one step ahead of the officials who visit about 10 times a year, he relies on a network of local businesses who alert each other when controllers arrive in the neighborhood.

‘Lucky’

“It’s very easy for me to get caught,” Petros said. “So far, I have been lucky.”

A traditional restaurant in a northern suburb of the capital didn’t get any tipoff before the Saturday-night inspection team showed up as about 60 people dined. Some tables where food had been served lacked receipts and the controllers discovered that some orders had been rung up after the team’s arrival — a last-ditch attempt to cover up the evasion.

As the team was leaving after imposing two fines, the manager rushed up to one inspector and asked whether the visit was linked to a customer complaint.

“No,” said the inspector. “It was just because the lights were on.”