ECONOMY

Alogoskoufis wants ‘radical’ tax proposals from commission

Economy and Finance Minister Giorgos Alogoskoufis has called on the commission of experts preparing proposals for the reform of the tax system to be «radical» in its recommendations. According to the information available, some of the proposals will simply be a rehash of the previous government’s legislation, such as, for example, a gradual reduction in the top income tax rate from 40 to 35 percent. Other proposals in the pipeline would increase, rather than decrease, the complexity of the system. It is said, for example, that the income tax brackets will increase, although they will be homogenized for all categories of individual taxpayers. Furthermore, the government intends to increase the ceiling of tax-exempt income to 12,000 euros from the current 10,000. The State is expected to lose some 400 million euros in revenue from the lowered tax rates, to be partly counterbalanced by the abolition of several tax breaks. It is quite likely that tax breaks for paying rent, children’s fees at schools and household expenditure that favor salaried employees and pensioners will be abolished. More changes are expected in the taxation of companies. Beginning next year, site inspections of small businesses will be abolished. The government is confident that the TAXIS computerized system will render these site inspections unnecessary. On the other hand, site inspections of larger companies and those companies or professionals who have fallen foul of tax authorities in the past will continue and even intensify. At the end of last year, many cases involving tax disputes fell under the statute of limitations and the State lost considerable revenues by not managing to inspect these companies and individuals on time. The government also wants to encourage construction activity by increasing the non-taxable portion of the value of a first house acquired by the taxpayer. Also, the value of interest paid on housing loans will be deducted from declared income rather than the tax to be paid. It is clear from these last provisions that the government is concerned about a possible slowdown in construction activity following the Olympic Games. Certainly, the type of construction boom currently under way concerns mainly big public projects. However, the ability of the construction sector, especially large companies, to switch to housing construction, is still a concern. Currently, the housing market is dominated by small companies that build one or two houses or apartment buildings a year and the involvement of the big construction firms in the market would invigorate it. The construction sector is a vital one if high economic growth is to continue, but not the only one. That is why Alogoskoufis plans to urge industrialists to mobilize themselves. He will offer incentives in the form of higher funds from the EU’s Third Community Support Framework (CSFIII) program. Alogoskoufis will explain at today’s annual general meeting of the Federation of Greek Industries (SEV) that the government will encourage private sector investment in order to keep growth high and create more jobs. He will promise tax incentives and may refer to a cut in corporate tax, in line with the conservatives’ promises to reduce it to at least 25 percent from the current 35 percent. SEV Chairman and Executive President Odysseus Kyriakopoulos will ask for a simple taxation regime and incentives through the so-called «development law» which is to be presented, in a revised form, later on this year.