Government plans reduction of solidarity tax

Government plans reduction of solidarity tax

The government is expected to slash the solidarity levy by 20-30 percent in mid-2020. Finance Minister Christos Staikouras told Skai TV on Thursday that the definitive decisions will be made in May, when the government has concrete data on the course of the budget.

Government officials say the reduction of the levy will definitely take place next year, and what remains to be determined is whether this will concern the entire year or just the second half of 2020.

If the measure applies retroactively from January 1, 2020, the fiscal cost will amount to 250-350 million euros (depending on whether the reduction comes to 20 or 30 percent). The average annual benefit for the 2.3 million taxpayers with annual incomes of more than 12,000 euros who pay the solidarity levy will range between 105 and 150 euros.

Those 2.3 million taxpayers earning over 12,000 euros a year constitute 26 percent of the entire tax base and pay 89 percent of the total income tax – i.e. about 7.4 billion euros out of all income tax takings of 8.3 billion every year.

The solidarity levy was introduced in 2011 as an extraordinary tax that was supposed to be abolished by the end of 2014. Five years on it still fetches some 1.2 billion euros per year, although it initially brought in an annual sum of 1.5 billion.

This levy cut is expected to ease the pressure on mainly the middle classes which in the last decade have borne the brunt of the fiscal streamlining. As Prime Minister Kyriakos Mitsotakis admitted in Parliament on Wednesday, incomes over 20,000 euros have earned little from the tax breaks the center-right government has introduced. In this context he pledged to reduce the solidarity levy, without offering any more details.

The first 12,000 euros of annual incomes are exempt from the solidarity levy; the income section from 12,001 to 20,000 euros bears a 2.2 percent solidarity levy; the rate grows to 5 percent for the income section from 20,001 to 30,000 euros, to 6.5 percent for 30,001-40,000 euros, then to 7.5 percent for 40,001-65,000 euros. Rates range from 7.5 to 10 percent for higher income levels.

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