The fight against tax evasion needs stricter penalties

At last, it seems that public revenues have finally reversed their declining trend. Since September, intensified tax inspections have been bearing fruit while the amassing of a wealth of electronic data promises further progress down the road. The most encouraging development of all is that value-added tax (VAT), which used to perform worse than any other revenue category and was responsible for the decline, is now playing a major part in the recovery. November saw the highest total rise, 9.1 percent year-on-year, on the back of a 11.6 percent increase in VAT collected. It may be too early for celebrations, but if Economy Minister Giorgos Alogoskoufis persists with his drive against tax evasion, which would include the return of mandatory submission of periodic VAT statements and penalties for accepting bogus invoices, we can be confident that the rise in revenues will be sustainable and reach the set target of 7.9 percent in 2006 – equal to the projected nominal increase in the gross domestic product (GDP). Next year is especially crucial for revenues, as the government must lower the deficit below the EU-mandated ceiling of 3 percent of GDP. As Alogoskoufis said in Parliament last week, the extent of tax evasion today is the economy’s most serious problem and the chief cause of the fiscal imbalance which led the country to be placed under a regime of EU supervision. He noted that tax evasion has significantly increased over the past five years, as proved by the development of tax revenues as a percentage of GDP – particularly of indirect taxes, where there have been cuts in rates, from 15.3 percent of GDP in 2000 to 14 percent in 2003, 13.8 percent in 2004 and 13 percent this year. Imposing stricter penalties for tax evasion is crucial in this drive. Greece is one of the few developed countries where tax evasion is not a penal offense. A senior Finance Ministry official was telling me the other day that the incidence of tax violations exceeds 75 percent (!), from mundane omissions to companies collecting VAT and not returning it to the government. The theft of VAT is basically done through the use of bogus receipts and invoices. The rackets issuing such bogus documents usually declare as their company base streets with non-existent numbers and offer their «products» in return for 20 percent of the nominal VAT written on them. When I asked him, Alogoskoufis stated that he will soon penalize this practice. Separately, ordinary citizens insist that an effective measure against tax evasion would be the reinstatement of ordinary purchase receipts for a range of family expenses as partly tax deductible. It is well known that a high percentage of establishments, particularly in entertainment, do not issue receipts and consumers have no incentive to to demand them.