ECONOMY

Firms bear more than tax burden

Greek corporate operating profits are subject to various mandatory contributions besides taxes, which considerably increase the total burden and make it among the highest in the eurozone, a joint report by the World Bank and business consultants PricewaterhouseCoopers (PWC) shows. Although the corporate tax rate now stands at 32 percent (and will be reduced to 29 percent for 2006 incomes and to 25 percent in 2007) the real burden comes to 60.2 percent – the third-highest in the eurozone. Italian firms bear the heaviest burden (76 percent), followed by France’s (68.2 percent). In Italy, the nominal corporate tax rate on profit is 33 percent, plus 4.25 percent on profits before taxes, wages and interest. In France the main rate is 35 percent. To be sure, the tax burden proper in Greece is lower than 32 percent, due to various tax, breaks and exemptions. The World Bank estimates the real burden to be around 21.4 percent. Various other contributions, mainly for social insurance, are much more burdensome, taking up 36.2 percent of profits, and various other taxes amount to 2.6 percent. The end result is 60.2 percent. In practice, the authors of the report estimate that the actual burden is even higher if account is taken of the cost of red tape which firms shoulder for their tax obligations. Greek companies are estimated to spend 204 hours a year filling out tax forms. No transparency The report, which covers 175 countries, concludes that complex tax systems ultimately bring about a reduction in tax revenue and says that there is widespread ignorance as to the actual total tax burden shouldered by firms. It argues that this should be taken into account by governments when setting their tax rates. A Greek expert’s 2002 report said the significant divergence between the nominal and real burden on the undistributed profits of enterprises caused a lack of transparency. It had proposed a drastic cut in corporate tax rates and the abolition of various tax free reserves.