Bankers seek moratorium

Bankers are asking Economy and Finance Minister Nikos Christodoulakis to delay for two years the implementation of legislation related to mortgage interest. According to the tax legislation currently being discussed in Parliament, for loans taken out in 2003, interest will be deducted from the tax and not from the income, as is presently done for loans approved through the end of the year. Bankers said the move could lead to fewer customers which will, in turn, cut significantly into their profits. Indeed, the decision by the Finance Ministry to change mortgage interest taxation has forced many prospective house-buyers to acquire first-home loans with urgency. Real estate developers said this trend has created an artificial picture of the property market. Increased demand has led to higher property prices solely due to these changes in taxation. Finance Ministry officials, however, said it is difficult to accede to the bankers’ demands, as it would run counter to the core of tax reforms. Under the existing tax regime, tax breaks related to mortgage interest significantly benefit higher-income groups and to a lesser degree middle-income groups. A final decision must be made this week as Parliament is due to vote on the tax reform bill. The proposal by the Finance Ministry is unfavorable for interest taxation. Effective next year, anyone who takes out a mortgage loan for the purchase of a first home will have a discount of 15 percent on their interest and on the amount borrowed up to 200,000 euros. This means that the taxpayer under the new tax system will have a smaller tax break compared to the existing system. For example, a taxpayer with two children and an annual income of 20,000 euros will have a bigger tax break. If he pays annual interest of 3,000 euros, 2,000 euros for life insurance, 1,500 euros for school fees and has receipts for purchases of household items for 2,950 euros, he will only need to pay taxes of 1,088 euros. Under the proposed tax system, he would have to pay 1,140 euros in taxes. High-income taxpayers will have a smaller tax break for any mortgage loans.

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