ECONOMY

The difficulties in tackling graft

Tax evasion in Greece has become one of the most serious structural problems of the economy; combined with corruption, it undermines social cohesion, strengthens phenomena of unfair market competition and deprives society of significant amounts of resources. The sense of corruption in this country is in fact so widespread that 56 percent of polled businesses consider that bribing tax officials is necessary. According to World Bank data, Greece ranks 12th in the incidence and extent of corruption among public officials. Measures against corruption do not seem to produce any results but most people seem to take the view that a basic prerequisite is the simplification of tax legislation. A number of studies have estimated the size of tax evasion to exceed 30 billion euros annually, or 15 percent of gross domestic product (GDP). Finance Ministry officials consider that the phenomenon can be tackled and there are measures that must be adopted, taking into account the international experience. They believe that blanket measures in recent years – granting absolution from possible past aberrations in return for standard one-off payments – are responsible for an increase in tax evasion and corruption. A large number of enterprises seem to prefer bribing, seeing that as a way to pay less taxes and rid themselves of the presence of inspectors. Nevertheless, ministers regularly repeat that they are resolved to break the rackets. In fact, 44 officials have been removed in various ways from their posts since the present government took office in March 2004, with 11 of them being sent to jail. Tackling the problem is hampered by the extreme shortage of competent officials who can inspect large firms. These are said to number no more than 10. Moreover, firms selected for inspection are told in advance, even up to two months. In this way the element of surprise is lost and errant firms are given time to cover violations or have representation made on their behalf. In a recent study by the privately sponsored Foundation of Economic and Industrial Research, it was argued that the ongoing phased reduction in corporate tax rates will reduce incentives for tax evasion and partly offset losses. But the study also notes that «an ineffective state apparatus can annul even the best tax system.» «Particularly in the Greek reality, the inefficiency of the tax administration, combined with an irrational tax framework maximizes the negative impact on business and competitiveness.»