ECONOMY

Luxury items will no longer push up taxable income

The government is thinking of abolishing the so-called «evidence of presumed income,» such as the acquisition of cars and luxury items, as part of the income tax declaration, while demanding greater disclosure of how a taxpayer acquired a property. The intention behind the reform is to rely exclusively on taxpayers’ declaration of their income and stop relying on criteria such as property or lifestyle to assess a taxpayer’s taxable income. However, it still intends to inquire into how a taxpayer found the means to acquire non-essential items during audits of a taxpayer suspected of tax evasion. Abolishing presumed-income criteria is not a question of principle but rather of practicality. Such criteria add little to taxpayers’ declared income and the resulting revenue does not exceed 2.5 percent of total tax revenue. The cost of processing these items is not worth the extra revenue, government officials believe, adding that this provision may actually encourage taxpayers to funnel capital abroad and prevent them from repatriating it. The computation of income using such evidence or other criteria is widely used in countries where tax evasion is widespread and computing the actual income is difficult. (Income computation using so-called «objective criteria» based on a taxpayer’s profession and office premises was successfully used in Greece a few years back in order to make professionals and merchants, who used to declare incomes well below the poverty level, pay taxes.) What does this reform mean in practice? It means that it will no longer be required of taxpayers to declare their cars, yachts, helicopters, private jets, home swimming pools, holiday homes, service personnel or yacht personnel. On the other hand, if tax authorities decide to audit a taxpayer, he or she must demonstrate that the financial means to acquire these items or services exist. These changes will be incorporated into a tax law which will be presented to Parliament in the autumn. Another change the government wants to include is a reduction in inheritance or asset transfer tax. Inheritance tax will be paid in 24 installments every other month instead of every month as is the case today.