Government mulls tax overhaul

The government is considering hikes in certain indirect taxes, such as on tobacco and beverages, but may reduce others as part of the planned overall tax reform, Economy and Finance Minister Giorgos Alogoskoufis said yesterday. «We do not rule out increases in certain categories of indirect taxes and reductions elsewhere. We are planning an overhaul of some aspects of the taxation system, but it will mainly be in our basic direction, which is the taxation of companies and self-employed professionals,» he told Flash radio Alogoskoufis said the government aims at gradually reducing the corporate tax rate from 35 percent to 25 percent by 2007. According to sources, the rate will be reduced to 32.5 percent in 2005, to 29 percent in 2006 and to 25 percent the year after. These cuts will concern corporate earnings as a whole, not distinguishing between distributed and undistributed profits. The government is also said to be studying special measures for new businesses, including lower tax rates for the first two years of their operation. Other measures are the abolition of stamp duty for personal and limited liability companies, and doubling the ceiling of the value of fixed assets, for which provision for depreciation can be made within the fiscal year it is acquired. According to the sources, investment incentives will no longer be tied to the level of job creation and there will be other incentives for company mergers. The reduction in company taxes will be accompanied by new tax inspection methods as of 2005. The Economy and Finance Ministry has already prepared proposals for making inspections and tax control more automatic, which have been submitted to ministers. The Financial Crimes Squad (SDOE), which the ruling party accused of favoritism when in opposition, will be abolished in its present form and be relaunched with broader responsibilities in the autumn. It is said that the overhauled body will no longer carry out inspections on the basis of random samples, but use data of the ministry’s online taxation system indicating possible sources of tax evasion. The priority criteria used in selecting firms for inspections will include the size of turnover, the level of declared net profits in relation to gross revenue, and their previous tax record. In particular, firms that have a history of violations will be checked annually to check for repeated violations. The relaunched inspection body will also carry out checks in coastal zones throughout the country with a view to locating town-planning violations and businesses and individuals that have built without a license. Alogoskoufis said the government is quite near to forming a picture of deficits hidden through the previous government’s uncertain public accounting methods, particularly in defense spending and swollen nominal surpluses of various organizations, notably social insurance funds. According to sources, the National Statistics Service will dispatch the latest available data on these two sources of deficit to Eurostat, the European Union’s statistical agency, next week, and put the shortfall for 2003 at 4.7 percent of gross domestic product, against a previous estimate of 3.2 percent. The increase is estimated to be accounted by an 0.8 percent of smaller surplusses and 0.7 percent of previously «invisible» defense spending. A Eurostat team is scheduled to visit Athens on September 6 and 7 for a further discussion of the latest figures.