Overhaul on tax rates

The government yesterday announced higher income tax-free ceilings for low wage earners and pensioners and a gradual reduction in the top rates for high incomes over the next three fiscal years. Economy and Finance Minister Giorgos Alogoskoufis said the tax-free ceiling for salaried people and pensioners is going up next year from 11,000 euros to 12,000 euros, while the existing 30 percent rate will be lowered to 25 percent by 2009. Also, the 40 percent rate will be brought down to 35 percent for incomes up to 100,000 euros. The lowest income tax rate of 15 percent, which applies to incomes above the tax-free ceiling of 11,000 euros, is abolished for salary earners and pensioners but is retained for the self-employed earning between 10,500 and 12,000 euros. Above 12,000 euros everyone will be subject to the same 30 percent rate. Sources said a Finance Ministry committee which studied the changes recommended keeping the lowest 15 percent rate above the tax-free ceiling but ministers rejected it, considering it too costly. Nevertheless, Alogoskoufis said the changes would create no extra burden on any taxpayers. According to sources, the government is also planning to increase tax breaks for medical expenses, life insurance premiums and private tuition fees from incomes to be earned in the next fiscal year. Breaks The tax breaks on premiums for life and medical insurance will be increased by 5 percentage points. Today, they cannot exceed 10 percent of the minimum tax-free income, that is 1,100 euros, representing an estimated total cost to the budget of 107 million euros. As regards medical expenses, the amount of tax resulting from the existing tax scale is reduced by 20 percent, with a maximum of 6,000 euros. The estimated cost to the budget is 65.2 million euros. Finally, the estimated cost of the proposed 20 percent increase in the tax break for private tuition fees will be about 33 million euros. Families with two children or more will be the greatest beneficiaries from the proposed tax changes to 2007 incomes, given the specially planned raising of the tax-free ceiling for them. Additional benefits may be introduced for large families. For salary earning families with one child, the tax-free ceiling will be raised to 13,000 euros, with two children to 14,000 euros and with families with three children to 22,000 euros. For every child after the third, the ceiling will be raised by 1,000 euros. Under the existing arrangements, a family with two children and an annual salary of 14,000 euros pays 300 euros in tax. In total, the planned income tax breaks will cost an estimated 1.4 billion euros over three years (2007-2009). Most of this sum (1.2 billion euros) is expected to be offset by increases in taxes on mobile telephony, tobacco and property transfers. Further tax revenue is seen being collected from an intensified application of electronic tax control cross-checking systems.