ECONOMY

Industrialists apprehensive over big investment incentives

The Finance Ministry is reportedly meeting strong and rather odd reactions from industrialists to a draft development bill it is preparing, designed to provide incentives for large investments of more than 30 million euros. Sources say that the Federation of Greek Industries (SEV), which has received a copy of the document for comment, disagrees with the idea that such investments will enjoy a stable 25 percent tax rate for 10 years and is pressing for it to be kept at 35 percent; the apparent reason is their fear that the measure will attract mostly foreign competitors who will be able to operate under more favorable terms. The bill aims to increase certainty among investors, who will know in advance the taxes they will have to pay in this 10-year period. The bureaucratic complexities and uncertainties of the Greek tax system, where frequent changes are the norm, is considered one of the chief reasons why foreign firms do not invest in Greece. The latest draft, of which Kathimerini has obtained a copy, does provide for a 25 percent tax rate, but this is not certain to remain as pressures of all kinds will mount in the period leading to the general election due next spring at the latest. The bill provides for a more or less «automatic» system of taxation, based on predetermined profit rates of between 2 and 30 percent, depending on the type of investment and scaled in two time phases, one of four years and the other of six until the incentive period expires. The pre-determined profit rates, on which the favorable tax rate will apply, are calculated on companies’ fixed assets and are scaled as follows: – Hotels: 2 percent for the first four years and 4 percent for the following six. – Advanced technology and software development: 25-30 percent respectively. – Mining: 6-8 percent respectively. – Manufacturing: 7-9 percent respectively. Example: A mining company decides to invest 100 million euros. The tax it will have to pay in the first year of operations is 25 percent of 6 million euros (6 percent of 100 million), that is, 1.5 million (if the rate remains as proposed), or 35 percent of 6 million euros, that is 2.1 million. Tax rates cannot be changed unless lowered. After the expiry of the favorable 10-year period, net profits are taxed at the rates applying for all other companies at the time. A firm investing under the new development law will be exempted from tax inspections, unless inspections in the books of other firms reveal violations of the tax code on its part; these will be subject to legal action. Companies wishing to invest under the new law will have to sign a contract with the government within two months of the approval of the investment. When details of the bill were unveiled in early July, SEV said it was «in the right direction but needs significant improvements in certain areas.» Chairman Odysseas Kyriakopoulos said SEV especially hoped that incentives would not be directly linked with the number of jobs, as in a previous law, which proved a failure. Kyriakopoulos found the bill’s tax incentives agreeable and said he hoped the law would not have a built-in bias against Greek enterprises.