By Sotiris Nikas

The Finance Ministry is testing a plan with groundbreaking changes in the taxation of incomes as part of an overhaul of the revenue-raising system, according to sources.

The idea is said to provide for the deduction from taxable income of all expenses except those concerning the acquisition of property assets, and the application of rates between 25 and 40 percent on the sum remaining.

Initial projections indicate that the lower income tax rates will indeed lead to an increase in revenues from other sources.

The plan provides that taxpayers will deduct from their annual incomes the full amounts of the following expenses:

I) Consumer goods, services, toll charges, car insurance premiums and all utility bills.

II) Those that are presently deductible only at 10 percent, such as rents, hospital expenses, medical visits and tests, private school fees and life insurance premiums.

In this way, the ministry considers that the tax code will be greatly simplified and the tax burden will be shared out more fairly. A likely reduction in revenues from income taxation is expected to be offset by two other collateral impacts:

First, an increase in taxes from incomes declared by businesses and the self-employed that today conceal a large part of their incomes. It is reasonable to believe that all consumers will insist on receiving receipts for all purchases and services rendered. According to a recent study by the University of Chicago, Greek doctors conceal an average income of 29,000 euros annually.

Secondly, an increase in VAT revenue, since businesspeople will be forced to issue a much larger number of receipts. Given that the lowest income tax rate will be 25 percent, consumers will have no interest in not paying VAT which is 23 percent.

The operation of the new system would depend on the direct electronic connection of sale points with the tax department.