BUSINESS

Blind taxation hurts economy

PROKOPIS HATZINIKOLAOU

TAGS: Taxation, Finance

Greece may have topped the chart in taxing corporations and individuals over the last decade, but the latest data show that taxes have been imposed in a haphazard fashion in this country.

This week’s report by the Organization for Economic Cooperation and Development (OECD) revealed that most revenues for the Greek state in 2019 derived from taxing goods and services (value-added tax and consumption taxes), amounting to 15.3% of gross domestic product, while in the rest of the OECD member-states’ takings mainly originated from income tax.

At the same time a study by the Foundation for Economic and Industrial Research (IOBE) shows that during the period of the country’s fiscal adjustment – i.e. in the 2010s – special consumption taxes were mostly used for boosting tax revenues by increasing rates and imposing new special levies.

This policy, analysts point out, “has not relied on the examination of the broader financial effects.” They also argue that the application of high tax rates had collateral losses, such as the increase in the illegal trading of products under special taxation, while revenues systematically lagged behind expectations and the targets set.

Despite the tax rate hikes, the shortfall in revenues relative to the budget target have been huge. For instance, the increase in the special consumption tax on tobacco in recent years, aimed at increasing state revenues, had a series of consequences on the economy that had been ignored when the tax plans were being made, with contraband cigarettes harming not only state revenues, but also smokers’ health to a disproportionate degree.

According to OECD data, in 2009-19, Greece insisted on this policy of increased consumption taxes to such an extent that tax revenues posted an eight-percentage point increase, the biggest among the organization’s 35 member-states.

IOBE researchers say that tax policy should instead encourage innovation, through boosting products and activities in a targeted manner, and perform a detailed analysis of each measure’s impact.

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