By Procopis Hadzinikolaou - Kathimerini

Economy and Finance Minister Nikos Christodoulakis has drawered the tax reform proposals drafted by the Theodoros Georgakopoulos committee as he works on his own proposals which will be publicized shortly.

The committee’s suggestions and the way they were presented to the public created a problem for the government and at the same time added more tension to an already geared situation.

Sources said the minister is collaborating with his associates to promote a new tax scheme which will constitute the government’s proposals.

In essence, the government is moving to radically restructure the tax system, with the ulterior objective of reversing the tense climate through its economy head.

A day after the Georgakopoulos committee unveiled its recommendations for public discussion, Christodoulakis in essence discredited its efforts and started working on his own, more socially focused tax reform proposals.

The committee’s proposals have been shelved indefinitely and the supposedly technocratic minister has reversed his stand as he seeks solutions that are socially acceptable.

Sources said Christodoulakis is seeking to lift the tax-free ceiling to 13,200 euros and to establish significant tax incentives for having children.

The unfavorable political climate has forced the governing party to compel its economy head to adopt a socially friendlier face.

In addition, forthcoming municipal elections are putting pressure on the government to come up with tangible tax incentives which, at the same time, help to silence its critics, a large number of whom are PASOK party members.

The adoption of a higher tax-free ceiling of 13,200 euros would be accompanied by the termination of a number of existing tax breaks. Also some tax rates would be modified, with improved rates applying to small- and medium-sized enterprises.

Tax credits for families with children would also increase. This means that existing incentives for families with three or more children and would also apply to those with two children.

The proposals drafted by the minister’s associates significantly depend on an increase in indirect taxes in order to fund tax credit proposals. Thus, a one-percentage-point increase in value-added taxes cannot be ruled out.

The State expects to save 1.32 billion euros from these proposed changes, while revenues from higher taxes on cigarettes and oil could come close to 1.46 billion euros.

The proposed tax reforms would mean that 71.9 percent of taxpayers or 3.5 million people would come under the new tax-free ceiling. Finance Ministry statistics showed that this group declared income taxes up to 13,200 euros but only made up 5.4 percent of the tax base.

Christodoulakis’s objective is to ease the tax burden on taxpayers earning between 14,700 euros to 23,500 euros, a group which accounts for some 20 percent of the tax yield.

Revenues lost from this proposal are expected to be made up by more stringent checks on companies and especially those paying value-added taxes.