ECONOMY

Minister expects mergers after corporate tax cuts

Greece should see a new wave of corporate consolidation in the next three years, with enlarged, stronger groups emerging which are able to compete on a global level, National Economy Minister Yiannos Papantoniou said yesterday after unveiling a series of tax breaks and measures designed to push local companies in this direction. The tax package underscores the state’s strategy of enhancing businesses’ competitiveness, he said. The biggest incentive for mergers is a 10-percent cut in the corporate tax rate for the first year and a 5-percent reduction in the following year for companies merging before December 31, 2004. The new rates will apply from this year. Mindful of the job losses that normally come in the wake of a merger, the state plans to encourage integrated companies to take on additional employees by allowing them to deduct social contributions for the new staff from net profits over a two-year period, Papantoniou stressed. One measure which allows companies to set up an investment fund with part of their profits for investments in the 2002-2005 period is designed to help firms plough their earnings back into the business. While calling the tax incentives a significant step, analysts said the measures were not sufficient in themselves. The 10-percent corporate tax cut is very significant from the tax perspective and can contribute to more mergers, said Miranda Xafa, consultant at Schroder Salomon Smith Barney. The downside, however, is that the state has failed to address the issue of a company’s cost-cutting ability, she said. The government only thinks of protecting existing jobs, Xafa said, citing the heavy costs to the taxpayer as a result of this mentality. Nicholas Bernitsas, manager at Rate Capital Securities, questioned the pressure exerted by the government on companies to merge. Why is pressure put on businesses to merge? In many cases, it is difficult for this to happen. The construction sector is one example, he said. For companies seeking funds for expansion, the government’s decision to create the relevant legislation facilitating the creation of closed-end mutual fund venture capitals should open up another channel for them. The state wants to encourage capital to be diverted toward high-risk businesses, the minister said. The new companies will be taxed on the same scale as other mutual funds, namely 3 percent. The domestic maritime industry also received a boost yesterday, with the tax rate for Greek-flagged vessels halved from its present level, bringing it in line with European competitors such as the Netherlands, the UK and Norway. Responding to the dwindling number of Greeks taking to the seas, the new measures also included a reduction in the income tax rate for both officers and crew, down to 6 percent and 3 percent respectively. The amended rates will come into effect this year. Other measures announced yesterday included tax exemptions for donations made to non-profitmaking research centers, a massive cut in the depreciation rate for buildings or land used as hotels to 4 percent from 8 percent, and the abolition of tariffs and tax breaks for foreign industrial companies in Greece effective in 2006. The tax package will be tabled in Parliament with immediate effect. It is not linked to the government’s current taxation reform program, which will be unveiled in the fall of 2002.