ECONOMY

Tax reform to get rid of breaks

The government’s long-awaited tax reform is to take the form of a restructuring of revenues, starting with the abolition of tax breaks totaling more than 2 billion euros, sources say. The Finance Ministry is said to be considering a return of the above sum to taxpayers through a lifting of the lowest, tax-free, annual income bracket to about 13,200 euros, and, additionally, through tax breaks for children. The abolition of most tax breaks will not affect small- and medium-sized incomes, and the 13,200-euro threshold is estimated to leave unaffected 71.9 percent of taxpayers who contribute only 5.4 percent of tax revenues. According to the Georgakopoulos committee which reported on reform last month, the total of tax breaks last year amounted to about 4.4 billion euros, which amounts to roughly 10.5 percent of all declared income. Most deductions favor the higher income brackets, especially because of the progressive tax scale. According to estimates, increasing the tax-free threshold for salary-earners and pensioners from slightly over 7,000 euros a year to 13,200 euros now, with a parallel reduction of the top tax rate from 40 percent to 38 percent will cost the public coffers only around 730 million euros. A Finance Ministry committee is said to be proposing the abolition of all tax breaks except for medical and hospital expenses, social security contributions and life insurance premiums – for which a higher tax break is recommended in view of the problems which the pension system is projected to face in future. Regarding tax breaks for interest payments on loans, the committee considers that they could be maintained as an incentive for home buyers, but proposes two changes toward fairness: First, that there be a 20-percent reduction in tax instead of a tax break on income, so that the support would not increase with income, and, second, that the amount of tax deductible interest on loans have a ceiling. The committee proposes the abolition of tax deductible receipts from the purchase of consumer goods and services as the measure has been found not to be an incentive for taxpayers to ask for receipts and has been much abused, while checking validity is unfeasible. As regards the tax scale, the committee considers that it must be further evened out, with the lowest rate of 5 percent raised to 20 percent. The highest tax rate could be initially reduced to 38 percent with a view to being ultimately brought down to 35 percent, on the condition that the mechanisms of tax inspection improve and tax evasion is curtailed. A reduction is also seen as an incentive for more investment and work and to limit tax evasion. ING is «totally comfortable with the competition,» Nijssen said. In addition to having the time and the dedication to making its venture successful, he said the group believes its years of experience in the Greek and global insurance market will be a decisive factor in helping it carve out a dominant role.