Strapped gov’t set on battling tax evasion

Value-added tax (VAT) on new properties is certain to be applied starting January 2006. Economy and Finance Minister Giorgos Alogoskoufis apparently led a meeting this week with ministry directors about this very issue. «We should forget about all this and get down to work, because the government is determined to definitely apply the new system as of January 1, 2006, that is imposing VAT on sales and purchases of new constructions,» Alogoskoufis is said to have told the ministry officials. «The only outstanding problem is the agreement with the European Commission on imposing reduced VAT on main residences.» The same sources say Alogoskoufis’s insistence on immediate application of VAT is explained by his belief that this will decisively combat tax evasion. This is the major threat for our economy’s fiscal balance, as the low state revenues are mainly responsible for the high deficits, due to which Greece is under EU supervision. According to Alogoskoufis, imposing VAT will clean up the construction realm, since constructors will be forced to ask for invoices from industries and manufacturers of building materials. Within this month, Alogoskoufis and Development Minister Dimitris Sioufas will also finish up regulation on the single fuel tax and the measures against illegal trade, as the state is known to lose more than 2 billion euros per year from heating oil. The government is therefore hoping to increase revenues from real estate and oil in 2006 so it will both meet the 3 percent deficit target, as the EU has required it to do, and avoid the unpopular decision of imposing new taxes. Beating tax evasion and increasing state revenues emerge as the main objectives for economic policy. If there is no progress by 2006, the government will not be able to keep its promises to Brussels, its credibility will generally be reduced (as it will appear unable to sort out its finances) and the economy will see high inflation that will undermine its competitiveness. The poor public revenues this year are undoubtedly due to the market’s idleness and reduced consumer spending, as well as poor management by the government, which has not come down hard on tax evaders. But the main opposition PASOK party, which is criticizing the government for its lax attitude on this issue, is concealing that it also failed to create an efficient mechanism to counter tax evasion. The proof is that in 2001, 2002 and 2003, state revenues were dramatically smaller than forecast. This means that tax evasion has been a problem for years. It also shows that the current mechanisms used to filter tax evasion are ineffective.

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