Taxation system favors widespread evasion

The ineffectiveness of the Greek tax system is once again highlighted by the latest data released by Eurostat, the European Union’s statistics agency. The data shows that, despite higher-than-average corporate tax rates and average income tax rates, Greece’s tax revenues, both from direct and indirect taxes, are below the EU average, despite an improvement between 1995 and 2002. The other symptom of ineffectiveness is the relatively slight contribution of direct taxes, which points to extensive evasion. Again, there has been an improvement between 1995 and 2002, but only a slight one. To a great extent, it must be attributed to the much-decried «objective criteria» used by the previous Socialist government to tax merchants and professionals according to the type of business activity and the size of their professional premises. While not accurate, this system limited the most flagrant symptoms of tax evasion, which had doctors or lawyers declaring average incomes well below the poverty threshold. The state’s total tax revenues accounted for just 36.2 percent of the country’s gross domestic product (GDP) in 2002, up from 32.6 percent in 1995, but still below the EU average of 40.4 percent (for all 25 members). Until the government gets Parliament to pass a tax law reducing the corporate tax rate, as promised, Greece will remain among the countries taxing businesses most heavily, in fact joint third, along with Spain and Malta, and behind Germany and Italy. The average EU corporate tax rate is 27.4 percent, due to the many low-tax new members that joined on May 1 and which have adopted low-tax regimes in order to attract foreign investment. By contrast, Greece’s difficulty in attracting investment is well documented, although the high corporate tax rate is not the only inhibiting factor. Europe’s biggest recent economic success story, Ireland, has the lowest corporate tax rate. In 2002, 26.9 percent of Greece’s tax revenue came from direct taxes, 40.5 percent from indirect taxes and 32.5 percent from social security contributions. In 1995, the figures were 23.8 percent, 45 percent and 32.2 percent, respectively. In the rest of the EU, revenue from direct and indirect taxes is nearly equal.