Hardly has been the new system of social contributions implemented and the creditors demanded a new system. A new system of calculations based on gross income. A new system will give another blow to low-income self-employed, freelancers and farmers.
The new system will affect 1.4 million people and will be implemented in 2018.
The measure has been reportedly accepted by the Greek government under pressure by the International Monetary Fund. Reason? A monthly deficit of €45 million in the Unified Social Security Fund.
The IMF most probably did not take into account that the black holes in the social security funds are linked to the thousands of businesses closing each and every month, and skyrocketing of the part-time work contracts and the black labor in time of deep recession that is accompanied by hig operational costs due to over taxation and high contributions.
According to the new new system, the calculation of the social security contributions for self-employed, freelancers and farmers will be based on the gross income. That is the contributions will be calculated on the income after expenses but before the deduction of the contributions for the previous year. The system implemented as of 1.1.2017 foresaw calculation based on the net income.
Both systems are wrong as they are based on the incomes of the previous year and not the running one. One of the IMF’s wrong methods is to tax or take into account not the real incomes.
The new calculation method will increase the social security contributions up to €110 on monthly basis.
The new method will affect mostly businessmen with an annual income of over €7,033 and will increase geometrically for those with higher incomes.
The increase will not affect the minimum contribution of 168 euros.
- A self-employed with annual taxable income at €11,500 in 2016, and pre-tax income of €14,000, currently pays €301 per month in contributions. With the new system the monthly contribution will be at €349, i.e. an increase of 14 percent.
- A second self-employed with taxable income of €16,000 in 2016 and pre-tax income at €20,000, pays currently 383 euro per month. With the new system, he will have to pay 454 euros.
A professional who will earn 15,000 euros in 2017 will pay in the current year 5,000 euros for social security contributions; they are calculated according to the earning in 2016. Based on the current legislation, the contributions for 2018 would have to be calculated on the difference. That is, on the amount of 10,000 euros. For 2018, the contributions for pensions and health care would be 2,700 euros. This will not happen:
1. In 2018, the insurance contributions will be calculated on the amount of EUR 12,750 and will be increased by €3,442. That is, an extra charge of € 742 more than what the self-employed or freelancer has thought he would pay i 2018.
2. As of 2019, when there will be no deduction of 15% of the income for the calculation of social security contributions, the annual social contributions will rise to €4,050 – or an extra charge of €1,350 more than what the professional had thought he would pay.
Greece’s lenders are said to currently discuss the government’s proposal to implement an one-year transition period and grant a 15% discount to all insured in this category for 2018. there will be no discount as of 2019.
Labor Minister Efi Ahtsioglu confirmed to Real FM on Monday the media reports about the new system of calculation for social security contributions for self-employed, freelancers and farmers. Ahstioglu said the government had to accept this change in order to be able to conclude the second review of the Greek program.
It is for sure a fail-safe method to create a stable business environment if you change the taxation and the social contributions system once a year.
Social contributions based on gross income, taxation at 29% plus 100% taxes to be paid in advance…. What is left in the hands of a freelancer or a small self-employed who gets an annual income of 12,000 euros? Fairly nothing.
The best joke of all times is that they also want to combat tax evasion.
Taking into consideration the pensions cuts and the broadening of the tax-free base at 5,600 euros that will be implemented in 2019-2020…
PS I am afraid, that we will soon have to close down Greece, the country and throw the key way.
I first posted this on May 3rd 2010. It is still valid.