Government considers innovative tax measure for small businesses

Constantly under pressure to improve the efficiency of its collection mechanism, the Finance Ministry is reportedly considering an innovative proposal for company taxation that would reduce red tape and offer relief to small businesses with an annual turnover of up to 150,000 euros a year. The idea, said to be favored by Economy and Finance Minister Nikos Christodoulakis who subscribes to the view that the approximately 500,000 such small businesses form the backbone of the country’s economy, is to give the option of paying a standard percentage of their turnover as taxes and be done with the tax office. The firms that opt to be taxed under this system would also be exempt from any subsequent tax inspections. Taxation experts take the view that the implementation of the measure would put public revenues on a permanently healthy basis, besides reducing red tape and fertile ground for corruption. The idea is said not be unrelated to the pressure under which revenues have come in recent months and the fact that small businesses and self-employed professionals have largely shown unwillingness to choose to pay a sum and be exempted from any tax inspections regarding the last nine fiscal years – a measure introduced earlier this year. The prevalent view is that public revenues have been affected by the generally unfavorable economic climate which hurt firms’ turnover. This climate is expressed in lower sales in many sectors, falling investment and building activity, and an apparent leveling-off of borrowing through credit cards. Given uncertain economic prospects, firms seem to have taken the option of not paying in order to settle with the taxman. Sources said recently that the Finance Ministry is considering extending the measure of irrevocable tax settlement for the fiscal years 1993 to 1998 to businesses that were not offered the option in the first place. To date, this option has been offered to about 750,000 individual businesses and self-employed professionals, such as doctors, lawyers and accounts with incomes of up to 75,000 euros a year. The option was also available to firms with an average annual gross income of up to 220,000 euros and a total of up to 1.3 million euros. According to provisional data, only about 350,000 businesses availed themselves of the option and the resulting additional revenue is estimated at 680 million euros. A further 80,000 businesses are projected to take the option by year-end. The Finance Ministry is particularly concerned over revenue targets after Eurostat’s recent revision of accounting rules, according to which the budget will show a small deficit instead of a surplus.