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Greece desperately tries to combat tax evasion but with such over-taxation… no chance!

Companies systematically evading taxes will soon see a padlock on their doors for 30 days. This new kind of fine to Greece’s tax evaders was announced today by the General Secretary of Public Revenues. The same fine will be imposed to company owners who prohibit tax inspectors from conducting inspections and controls. However, the GSPR explained also that “tax inspectors will give a second chance to tax evading businesses to comply with the law.”

If business owners are caught to not issue receipts for a second time, the padlock on the door will be for 48 hours, to start with.

A further measure is that companies that show revenue increases during tax inspectors presence in the area, when compared to periods before and after will be put on a so-called “black list”.

The relevant circular with instructions to tax inspectors is expected to be issued in the coming days.

This is of the latest efforts of the Greek Finance Ministry to address the plague of tax evasion but also to send a message to the market that despite the fact that fines for tax evasion have been reduced, this does not mean that the state does not have interest to collect taxes.”

Reports of “large scale tax evasion” especially in touristic areas and the islands have alarmed the financial authorities.

According to Greek media, the latest Value Added Tax hikes on islands that used to enjoy 3o% reduction in V.A.T. not only has public revenues plunge but also tax evasion skyrocketed.

In the time period January-April 2015, V.A.T. revenues from islands like Mykonos lag behind the target by 62%. On other touristic islands like Santorini, Paros, Rhodes, Kos and Zakynthos the targets were behind by a range between 35% and 40%.

By 24% Value Added Tax it is clear that the customer would prefer to refrain from receiving a receipt and thus have a reduction of even 50 euro for a purchase of 100 euro.

Another measure, the Finance Ministry will put into effect as of August is that “taxpayers will enjoy tax-breaks only if they cover a percentage of their income through payments with cards.” Otherwise they will even get a fine for failing to do so.

According to Ministry, the percentage of payment via cards will be 10%-30% for annual incomes 10,000 – 40,000+ euro. This means that those with annual income €10,000 will have to have spent €1,000 for payments/purchases via credit cards/debit card. But he who earn 40,001 euro per year will have to spend 12,000 via cards.

This measure will force business owners to have POS devices and the customer will have incentives to make the payment via the card.

But these sneaky modern Odysseuses already think to make purchases up to the necessary percentage/annual income via card and once they have met their target to pay cash and without receipt thus receiving a juicy reduction of 24% from the retail price.

The point is that with such taxes for small businesses and self-employed the whole society tolerates tax evasion. If the state taxes from the first €uro, wants 100% tax in advance, and social security contributions can be 300-900 euro per month all small businesses and self-employed can either close thier businesses or tax evade.

An example: According to the new taxation system, if someone is hired as minimum wage employee (580 gross per month/€495 net, taxation for employees – this could have a tax-break of 2,000 euro) and in addition he earns some extra bucks as free-lancer (say €200 per month, taxation 26%) the revenues from the two different sources come together and are taxed with 29 percent!

Monthly income €780

€326 taxes 29% + social security contribution €90 = €416

How fair is that?

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  1. The whole tax issue is a red herring in my opinion. Everyone with half a brain, including our “partners”, knows that the taxation system imposed on Greece makes no sense whatsoever and will never lead to sustainable levels of tax revenues. Nor will it lead to a long term (and fair) tax structure on which the state can build. In fact it does exactly the opposite in that it encourages people and businesses to tax evade if they want to survive. The better question is why would the partners obdurately insist on these absurd levels of taxations and on getting the Greek government to agree to ridiculous tax schemes that more or less guarantee that evasion will be rampant? I think the answer has to be that they don’t really care about how much money the Greek States raises through taxation but they need the reality of continuous (and programmed) tax evasion as a bludgeon to continue to pressure the Greek government to sell off public property to private concerns at fire sale prices. I’m sure the discussion between the Greek government and the “partners” goes something like this: “You haven’t met your projected tax targets for the year.”” But we can’t, they don’t make any sense.” “We don’t care. You will need to make up the difference between what you collected and what we unilaterally decided you could raise by selling off more public properties. Oh and by the way, you will need to raise taxes next year to make up the difference in revenues. We’ll see you next year.”

    • keeptalkinggreece

      interesting approach

      • I know so many people (individuals, small shop and business owners) who have always paid their taxes but cannot possibly survive the current tax onslaught. What are they do do apart from shutting down their business (and some have)?

  2. Sadly, I think there is a certain amount of truth in your reply.

  3. The Soviet collectivization worked the same way. First they taxed and regulated so that small enterpreuers quit and went work to goverment owned factory. Next step is working some days free because of difficult situation in country and when economy goes really bad, then goverment must deploy extraordinary measures, for example found some kind of places where people may live and work. Of course network like this demand some coordination and so goverment will launch for example National Bureau of work camps. GULAG in russian.

  4. There have been several recognized academic studies into tax compliance by the self employed and small businesses across several countries. All have found that some 15 to 20% of sales go unreported, as these people try to make ends meet. Even in great and holy Germany. The poorer the performance of the economy, or the higher the VAT rate, the higher the level of non-reporting. Whether or not the vendor offers a discount for not issuing a receipt, at a 24% VAT rate, all it takes is not reporting 300 Euros of business to put minimal groceries on the table for a family of three. Note that the research mentioned pertained to VAT rates in the teens, not 24%.

    Now, considering that Greece has nearly 4 times the portion of the population working as self employed or small business owners than most other EU countries, the gross under reporting of income is going to be 4 times that of those countries, even under the best of conditions, no less the current depressed economy and ever rising tax burdens.

    Unfortunately, the neoliberals driving our “recovery” are not interested in reality. Rather, they are driven by dogma.

    • keeptalkinggreece

      you are right. I remember when student in Germany and we had plumbers, electricians & other technicians, they were all willing to get cash without receipt and give a nice price discount. The probably did that to pensioners too and other vulnerable groups of the society. Yes, the Germans’ cause was noble 🙂

    • The extent of the informal economy is rather high in some developed countries, and as you say, the prevalence of small shops and family businesses that can barely survive make Greece rather more affected. But do not forget the massive tax evasion by big business in the rich countries.
      I do not consider Schaeuble and the other crooks running the eurozone to be neoliberals. They are actually worse: they are crony capitalists, which is political collusion with banking and big business (often for personal gain). This is actually a hijacking of democracy by crooks — and the sheep of Germany just follow, as they did with Hitler. Some peoples never learn.