Greece launches talks on tax reform
Greece yesterday kicked off a social dialogue on reforming its antiquated and complex tax system with the goal of producing a fairer and more transparent structure that will promote growth and investments. Addressing participants at the conference, Economy and Finance Minister Nikos Christodoulakis said the government’s non-binding proposals, drawn up by a committee of experts, aim at setting up a tax system that will be simpler, fairer, more consistent and effective, rather than one that just increases revenues for the state coffers. The recommendations also attempt to correct distortions in the system and combat tax evasion. Greece’s belated decision to modernize its tax system comes as other eurozone countries, notably Germany and Sweden, have embarked on bold tax cuts intended to stimulate the economy and attract foreign investments. Last year, the government sought to give a quick fix to the economy with a package of tax incentives that included lower corporate tax rates linked to job creation plans, a reduced levy on industrial crude oil and higher tax-free thresholds for individuals and professionals. Underlining the complexity and difficulty of modernizing the tax system, even surpassing current efforts to revamp the country’s debt-burdened social security system, Christodoulakis said that tax reforms are «the mother of all reforms.» In an attempt to shift the tax burden away from low wage earners and low-benefit pensioners, the government proposes to raise the tax-free ceiling for individuals to 9,500 euros from 7,400 euros. To offset this, the State plans to abolish tax credit currently offered for household expenditures, tuition fees and home rental, among others. Individuals with income below the tax-free threshold and salaried workers, regardless of the size of their income, would no longer be required to submit tax returns. The government also proposes to do away with imputed criteria for expenditure and property acquisitions because of the low tax revenues raised by this method and the counter-effect of driving domestic capital away to foreign markets. Another proposal seeks to end the special tax status of certain groups of taxpayers who earn above-average salaries, such as members of Parliament and professional athletes. Special treatment of foreign-based companies doing research or construction work in Greece and winnings from games of chance would also be abolished. Another recommendation would see the maximum tax rate for individuals come down to 38 percent and eventually 35 percent from the current 40 percent in a move designed to counter more competitive tax regimes in the eurozone. Corporate tax rates and the levy on dividends are also projected to decline, although the government did not specify figures. Last year’s tax modifications brought the corporate tax rate down to 35 percent. It also proposed to do away with the turnover tax on insurance companies and all stamp duties, with loss of revenues from the latter projected at 470 million euros. Lower direct taxes, however, will be balanced out by more indirect taxes, according to the government proposals. Value added tax (VAT) would be imposed on the transfer of new buildings and real estate. A scourge for many because of its complexity, VAT procedures would be simplified as well. The government also proposed a single property tax to replace the current multitude of charges and tariffs, with the proceeds going directly to local authorities. Some 100 third-party taxes are expected to get the chop, with 150 expected to remain in place. The social dialogue is expected to continue to the end of May and the relevant legislation to be tabled in Parliament in the fall. The tax reforms are due to come into effect on January 1, 2003.
