ECONOMY

Gov’t unveils tax reform bill

The government yesterday unveiled a long-awaited draft bill of tax reform measures hoped to bolster domestic demand, entrepreneurship and investment. Economy and Finance Minister Giorgos Alogoskoufis said the four-pronged package comprised tax breaks for all incomes, cuts in tax rates for enterprises, the standardization of tax controls and the setting up of a new body to fight tax and financial crime. Alogoskoufis said private investment and entrepreneurship, which the measures are designed to promote, form one of the pillars on which the growth of the Greek economy will be based in coming years. The other pillar will be an investment incentives law which will be soon ready for tabling in Parliament. «We are enhancing the growth potential of the Greek economy, correcting some of the great injustices of the tax system and promoting transparency, simplicity and efficiency,» he said. The tax-free ceiling for wage earners and pensioners will be raised from 10,000 euros today to 11,000 euros, and for the self-employed from 8,500 euros to 9,500 euros, as of 2006. Taxation rates for incomes above the tax-free ceiling are to be reduced, giving relief of up to 150 euros for those with low incomes, 90 euros for medium incomes and 50 euros for high incomes. The rate for expenses such as for medical and hospital treatment, rents and mortgage interest which will be deducted from the payable tax will be increased from 15 percent to 20 percent; taxable income is reduced by 20 percent of the expense for the installation of natural gas; unemployed offspring will be considered as dependants for two years longer for tax purposes; incentives are introduced for people relocating away from the main urban centers and residents of islands with less than 3,100 people will enjoy a tax-free ceiling of 16,500 euros. Measures designed to bolster business activity, investment and liquidity include a gradual reduction in the profits tax on large companies and cooperatives from 35 percent today to 25 percent by 2007; similarly, the rate for small companies will fall from 25 percent today to 20 percent by 2007, and the stamp duties on their net profits is to be abolished. Alogoskoufis said his ministry, responding to a longstanding demand of business, will soon issue a precise standardized list of tax-deductible expenditure for enterprises, which will significantly reduce disputes with the tax authorities and the number of them ending in litigation. The draft bill also sets out in detail the requirements and procedures whereby all tax statements will be considered irrevocably closed. Taxpayers will thus not be subject to the frequent phenomenon in recent years of having to pay one-off sums in tax amnesties, even though they may have not committed an offense. Taxes withheld at the source in advance for each current fiscal year are to be reduced by 50 percent for the first three years after the establishment of a firm. Firms will be able to deduct a further 50 percent of research and development costs from their net earnings, in addition to the deduction of such a total from the gross revenue. Further training costs for staff will also be deducted from gross revenue; tax incentives are introduced for mergers among small and medium-sized enterprises. A measure designed to encourage savings provides that the tax rate on interest earned from deposits and repos, now 15 percent, will be reduced to 10 percent, while the tax rate on bonds will be increased from 7 percent to 10 percent. The tax on stock market transactions will be cut from 3 percent today to 1.5 percent as of January 1, 2005; buyers of domestic balanced mutual funds will enjoy a 20 percent reduction on taxable income of sums up to 3,000 euros if the shares are retained for at least five years. Alogoskoufis said the total cost of tax relief is estimated at 150 million euros and that the bill includes no changes regarding indirect taxes. The president of the National Confederation of Greek Commerce, Dimitris Armeniakis, said the tax reform bill will be «the turning point for the bad business climate.» He particularly welcomed the standardization of tax reporting and inspection procedures which should end a regime where firms were «permanently held hostage.» The General Confederation of Greek Labor (GSEE) said «the new tax bill increases the tax burdens on wage earners and pensioners and widens the gap between theirs and larger incomes, through the generous tax breaks granted to enterprises.» GSEE wants the government to raise the tax-free ceiling to 13,000 euros, with a parallel reduction in indirect taxes and the abolition of VAT on necessities. The Communist Party of Greece called for a tax-free ceiling of 15,000 euros, with further increments of 5,000 euros for each dependent, and a more progressive tax scale for large incomes. The present top tax rate is 40 percent.