Sticks, carrots and tax evasion

Sticks, carrots and tax evasion

Once again, we are faced with the usual revelations of widespread tax evasion in popular summer destinations. It has been recorded in restaurants, clubs and even rented villas. Dealing with this problem, particularly in a country such as Greece where tax evasion is a long-standing malaise, requires a combination of tax cuts and stricter penalties.

This is the only way to keep entrepreneurship alive and maintain economic growth, while at the same time squeezing taxes out of a significant chunk of the black economy, which would in turn stop being a burden on the country’s finances.

The incidents of tax evasion reported on holiday islands such as Mykonos and Santorini are characteristic of the problem. Many people are vexed by the luxury and consumerist excesses observed on these islands. Indeed, there are excesses that often seem provocative.

However, from the point of view of the Greek economy, any type of consumption, whether it concerns the food and entertainment sector or overnight stays, generates revenue not only for the entrepreneurs and owners but also for the Greek state. Provided, of course, that businesses operating in these expensive tourist destinations and offering their services to affluent visitors pay the appropriate taxes. If the system works properly, they can be an important source of revenue for the country.

In order to have the desired economic results, reducing taxes is not enough. Political courage and operational competence of the tax authorities are also needed to fully enforce the law and impose very strict fines on anyone who tries to dodge paying taxes, with no exceptions.

In this context, it is a positive development that one of the changes brought about by the crisis is the establishment and results-oriented operation of the Independent Authority for Public Revenue. Having spent many years in the United States, a country with one of the most developed taxation systems, I dare say that many things have changed in Greece for the good. The collection system is being modernized; the processes are becoming more automated; “contact” between citizens and tax authorities is being minimized. The leadership of this authority is able and truly independent.

In order to bear fruit, tax cuts and the imposition of heavy fines must act as communicating vessels. The combination of an attractive “carrot” and a real “stick” is the best way to create an effective incentive for entrepreneurs to abide by the law. The only way for businesspeople not to want to risk breaking the law is if on the one hand they make a fair profit and, on the other, they know that their business will not just be closed for a couple of days, but will rather be shut down if they don’t pay their taxes.

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