The issue of the tax-free threshold is the main stumbling block in the negotiations between Athens and the country’s creditors according to a Finance Ministry official. He noted that the key reason behind the suspension of talks was the disagreement between the government and the International Monetary Fund on the personal tax allowance, despite the eurozone’s compromise proposal that was also rejected by Athens.
Sources say that the government may present a new proposal on the issue if the creditors insist on their positions so that the review can be wrapped up.
However, IMF officials note that the government’s tax reform proposal does not fetch the required additional revenues equal to 1 percent of gross domestic product, as Finance Minister Euclid Tsakalotos had claimed this week, so some amendments will be necessary for the agreed target to be met. In view of this likely impasse, the eurozone proposed a conciliatory idea that provides for the indirect tax-free ceiling to drop to the level that the IMF proposes, or 8,182 euros of annual income, but not immediately. The eurozone has proposed that this could be done gradually, within three years.
The Greek proposal provided for a reduction in the tax-free ceiling from 9,550 to 9,100 euros, by reducing the tax credit from 2,100 to 2,000 euros. However, this would only apply to incomes up to 20,000 euros per year, as each 1,000 euros of income on top of that amount will reduce the tax exemption by 10 euros.