7-percent tax on repos won’t be applied retrospectively

Greece will not apply a 7-percent tax on repurchase agreements (repos) retroactively on interest earned in 2001, a Finance Ministry official told Reuters yesterday. Greek savers, with repos established last year but maturing in the first days of 2002, were surprised to find out that earned interest was being taxed retroactively as Greek banks started withholding the 7-percent tax. «Based on a decision signed by the deputy finance minister (yesterday), the tax will only apply to interest earned in 2002 and not to December 31, 2001,» the Finance Ministry’s director of taxation, Dimitris Papademetriou, told Reuters. He said the ministry’s decision would be circulated to Greek banks later in the day. Greek savers, keen to secure a real return on cash, piled into repos during 2001, but European Central Bank rate cuts and the new tax may brake the trend, bankers say. At its simplest, a repo is an exchange of cash and collateral between two parties. Greek government bonds and treasury bills serve as collateral. The tax will not affect wholesale repo transactions in the interbank market and between credit institutions, Papademetriou said. Based on recent Bank of Greece statistics, repos had grown 81.6 percent year-on-year by July last year, reaching a total of 31.6 billion euros. In contrast, growth of savings deposits, where interest is taxed at 15 percent, grew by a much slower 8.2 percent during the same period. Savings deposits with maturities of up to three months totaled 51.5 billion euros in July last year.

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