A fairer tax system

A radical solution to the problem of tax evasion requires changing the basis on which the country’s tax system depends. The pothen esches (declaration of sources of assets) form must become the centerpiece of the reformed tax system for two reasons: first, to fight tax evasion (the main reason) and, second, to boost the percentage of revenue raised from individual income taxes (that is, to make the system more equitable). In order to achieve this, we must tax not exactly the individuals’ income but the change in assets within a particular year. To be more specific, we must tax that part of the change that will be determined to arise from cash inflows (and not from presumed income sources, whose taxation must cease). In practical terms this means a comparison of an individual’s (or couple’s) savings, securities, real estate and luxury possessions such as yachts or cars at the beginning and at the end of the year. Also, if a taxpayer owns, at the beginning of the year, 100 stocks worth -1,000 and their value rises to -1,400 by the end of the year, this is not due to a cash flow and the gains should not be taxed. But if the same taxpayer sells in the course of the year, say, 80 shares for -640 and then buys another 120 shares (of a different company) for -1,440, he or she must justify the source of the additional -800 (-1,440–640), whether it comes from earned income, the sale of acknowledged assets or a loan. If it comes from earned income which is justified either by bookkeeping records or an employer’s certification and this income exceeds a minimum subsistence level set by the state, then any capital gains should also not be taxed. But if this individual’s ascertained income is not sufficient to account for the purchase of the stocks, then the -800 should be counted as extra, undeclared income and the individual fined. In order for the above system to function, we need to reconfigure the TAXIS online system to enable it to record complex changes in assets. We also need a register of properties, a task which should be easier than the land register now under preparation. In this property register, each property would be assigned a unique code that would also contain the kind of ownership on the property and would contain one or several tax register numbers, in order to track down ownership changes over time. Third, the Personal Data Protection Authority should become more flexible and allow banks, insurance and investment firms to provide data on savings accounts and securities for all their clients. Banks should also report any transfer of money abroad, with the names and tax register numbers of their clients attached. Of course, would-be tax dodgers would be tempted to place cash in cases and carry them abroad, but the countries now accepting such cash without asking questions (e.g. Congo, Haiti) are too dangerous to travel to with that kind of luggage. (1) N.G. Pirounakis is professor of economics at the American College of Greece and one of the NSS experts who contributed to the 1998 GDP revision.