Luxury taxes
There are two different luxury taxes at the moment in Greece, one established in 2010 (law 3833 “Special tax on luxury goods”) and one established in 2013 (law 4111 “tax on luxury living”).
“Special tax on luxury goods” is in fact a sales tax imposed at different percentages as follows:
a) at a rate 10% to 40% for new cars above a certain purchase value.
b) at a rate of 20% for aircrafts and helicopters for private use.
c) at a rate of 10% for jewelry, watches and other products made of precious stones, metals and leather.
d) at a rate of 10% for private recreational boats.
“tax on luxury living” is a tax which will be imposed on the ownership of 1) cars above a certain value (rates from 5% to 10 %); 2)swimming pools and 3) private aircrafts or helicopters. This will not be imposed upon the sale, but -annually starting from 2013- upon the ownership of those goods, which according to Greek tax law is “deemed income” of the taxpayer.
The imposition of both those taxes is an attempt of the State to tax wealth which (wealth) does not correspond to the little income declared by a large number of taxpayers who possess it. So, in principle, it seems justifiable and fair.
In practice, however, the results are questionable, especially for the “special tax on luxury goods”; being a sales tax, it was definitely not successful in a period of crisis when even wealthy people do not buy, and the very few who are willing to do so, may well fly to London or Paris for shopping. So any results should be assessed after taking into account the impact on local demand.
The “tax on luxury living” is different because it is not imposed on sales but on “passive” wealth that is already possessed by taxpayers, and which is already “known” to the tax authorities. So it is expected to be more successful. However, its method and basis of calculation could have been a lot more simple and straightforward.
The main advantage of luxury tax in a country like Greece is that it is imposed regardless of the income that is being declared, taking for granted that the ownership of expensive goods means that you “must” have income. Until the reform of the Greek tax system is complete and the authorities show the willingness and the capacity to properly tax real income, the imposition of indirect taxes is a necessary evil.
Among the disadvantages is that it in fact “punishes” ownership which does not necessarily correspond to real income. There are many property owners who have for example paid inheritance tax for their home which happens to have a swimming pool and now are forced to sell it because there is no income to cover the taxes that are imposed on the property. This is only an illustration. Taxation of passive assets has multiple effects on the market.