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Update on tax administration and policy in Greece, July 2015

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Update on tax administration and policy in Greece, July 2015

Quite surprisingly, after its election in January, the government did not seek to replace the General Secretary of Public Revenue, Mrs. Aikaterini Savvaidou, a reputable technocrat whose professional career is very distant from its philosophy. However, the fact that she stayed in office may not be a voluntary political decision; it is also due to the commitment of the previous government to establish a rigid political independency for this Secretariat, which for decades in the past had been subject to political intervention. A major (albeit anticipated) change was the appointment of a new deputy minister of finance, Mrs. Nadia Valavani (on top of Mrs. Savvaidou).

General philosophy of the Ministry 

Political willingness to “catch the big fish” – redistribution of income

According to the political agenda of the current government it is within its plans to finish off with tax audits that are pending for the so called “list of tax evaders”. These are lists with persons 1) who have been reported to have bank accounts in Switzerland and Liechtenstein 2) who has sent money abroad after Greece entered the austerity program in 2010.

Electronic payments

The use of electronic methods of payment, which is not very widespread in Greece compared to other countries, will help combat tax evasion. It is a good thing that the government has already expressed its willingness to promote electronic payments and try to minimize the use of cash in the transactions, there does not seem to be a clear plan on how to achieve that.

However, the above are still “general” policies. We have not seen clear signs of the strategy of the ministry. The reason is that during the first five months in office, there was (and still is) great political uncertainty which has dropped dramatically any significant economic activity; so the focus of the ministry of finance was to collect “old” taxes. When we say old taxes, we mean a huge volume of uncollected taxes, estimated now at a record of 77,87 billion Euros. These uncollected taxes are to a great extent “on paper” in the sense that they may relate to taxes, fines and penalties imposed on entities that are bankrupt or empty of assets, so enforcement is literally impossible. They are also to a great extent “pumped up” by old legal provisions that traditionally imposed huge amounts of penalties ranging from 120% to 300% of the original amounts due.  So in order to collect money during a period of no business activity the Ministry passed an amnesty law which relieves taxpayers from all penalties and interest provided that they pay the original installment one-off. Also, for taxpayers who wanted to benefit from a partial payment, this amnesty offers up to 100 installments but with a smaller haircut on penalties, i.e. 30% (the more the installments the smaller the haircut). Any money that was collected during the last couple of months was from people (individuals and businesses) who applied for this amnesty benefit, an estimated of more than 770.000 taxpayers.  Apart from the “old taxes”, the collection of which will depend on the willingness and the economic ability of the taxpayers to continue paying the installments that they applied for (it is not unusual for taxpayers to firstly subject themselves and then drop out of the amnesty scheme). This amnesty scheme expires on 15th of July 2015, following 2 extensions that were granted in June.

Changes that are announced by the government and how they may affect tax collections;

Technical improvements needed

Former Finance Minister Mr. Yianis Varoufakis admitted in his interview to the German press, “the biggest problem with VAT is our inability to collect it”… This is the reason why the Greek government, following mutual efforts in the diplomatic level, is about to sign a protocol of cooperation for the transfer of know-how with German state of North Rhine-Westphalia.

There will be automatic exchange of tax information with other countries as of 2017 including Switzerland.  In light of this prospect, there are talks about a draft bill – amnesty law to enable Swiss kept money to be repatriated with 10-15%.

Statistics about drop of tax collections since January;

According to data published by the Ministry of Finance, the tax collections fell sort by 1,7 billion Euros during the period from January to May this year, out of which 1,2  Billion is from direct taxes and 507 million from indirect taxes. VAT collections (part of indirect taxation) fell sort of predictions for the same period by 369 Million Euros. The deficit in indirect tax collections proves a decrease in expenditure.
It is a general belief that, in the absence of economic activity, there will be no improvement in the collection of taxes. The government is seeking to tax wealth that exists, but to the extent that this wealth is immoveable, there is little range to do so. For the collection of taxes, it is very important that economic activity goes back to normal.

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