ECONOMY

Can tax reform be pursued with deductible sale receipts as perks?

In any law-abiding society, the government’s recent reinstatement of tax-deductible sale receipts would likely create an uproar, especially in a pre-election period. For it would be nearly unheard of for the taxpayer to enjoy a 40 percent deduction from taxable income simply by submitting proof of his retail purchases – such a benefit would properly be viewed as a perk. Not so in Greece. In a country where the underground economy accounts for 30-40 percent of total economic activity, nothing should be perceived as logical or self-evident. For instance, the arguments heard about whether it makes sense for an individual to collect receipts – mainly for services rendered – could be described as inconceivable. The taxpayer is, of course, obliged to ask for receipts and those who offer their services are obliged to issue them. If we follow the logic of how large a reduction from taxable income the state has to offer in order to ensure the rule of law, then it can be argued that the basic tenets of a society are in doubt. Transactions in the services market are often conducted without receipts, with real benefits for the two parties involved and the public coffers the permanent loser. Not infrequently, service providers go as far as to offer a discount even larger than the value-added tax forfeited in order to keep the customer happy. Besides, many specialists also hold salaried occupations in their field, which covers them as taxpayers. Indeed, some are not even registered as self-employed and could not issue receipts anyway. Such behavior is not hard to explain. Greeks have been traditionally convinced that the taxes they pay are squandered by an overblown and cumbersome civil service. Also, they believe that a significant portion of them ends up, one way or another, in the pockets of corrupt officials. As well as that a small part goes to pay the police, the armed forces, and the health and education services… with meager result. Why then pay taxes if you can avoid it? The answer to this fundamental question for Greek society is essentially the key of the tax reform that Economy Minister Giorgos Alogoskoufis is trying to push through. Up to now, the government has focused its efforts on reducing tax rates. This has not been negligible, and, contrary to what the initial critics predicted, has not led to any collapse of revenues. Despite a temporary shortfall in the first half of 2007, there is no real cause for concern. Nevertheless, lower taxes are not enough. A comprehensive tax reform should include at least the following: first, simplification of tax legislation to make the taxpayer’s rights and obligations more comprehensible; second, speeding up tax litigation cases; third, the technological modernization of control instruments to make procedures more transparent, faster and fairer; most important should be the imposition of some order on the chaos that rules the domain of tax officialdom and which gives rise to phenomena of corruption. With nearly four years at the helm of the economy, Alogoskoufis is now in a stronger position to implement a hard tax reform policy. Of course, that will be after the elections.