Gov’t policies offer incentives for tax dodging

Tax dodgers in Greece enjoy multiple benefits: They pay less tax, they avoid social security contributions, they can protect their main residence from confiscation and have access to a number of social benefits, ranging from free nursery places for their children to various allowances.

The temptation to declare an income lower than that actually made in order to pay less in taxes and get special allowances has always existed. However, this incentive has grown to historic proportions with the policies of the leftist-led government in the name of protecting the financially worse-off.

In an environment where tax rates are soaring and social security contributions are tied to declared incomes, tax evaders also gain a competitive advantage in the market, in some cases allowing them to slash their prices by up to 30 or 40 percent more than a law-abiding professional can.

The ministries of Finance, Economy and Labor are preparing to implement policies that will further encourage Greek taxpayers to hide their actual incomes. That’s because, at this stage at least, there is no mechanism to distinguish taxpayers in real economic hardship from those who are simply concealing their true incomes.

The bill aimed at boosting online transactions will not help either. Taxpayers who declare lower incomes won’t need to carry out as many electronic transactions in order to qualify for their maximum tax-free allowance. At the same time they will be able to continue to pay for many goods and services in cash, leaving no electronic trail behind them.

The first change that will encourage tax evasion concerns the association of the social security contributions of 1.6 million taxpayers with their declared income for the first time. All self-employed professionals and farmers know that the less they declare as their annual income, the less they will have to pay their pension fund.

Secondly, taxpayers with revenues from two sources (from a salary and their own business, for instance) will see a single tax rate applying, as the separate rates depending on revenue sources are abandoned. In practice, this means that incomes from professions that up to last year were taxed at a 26-30 percent rate will now carry a tax rate of up to 55 percent.

The third change concerns the new system of calculating pensions, which cancels out the incentive for maximizing future pensions. As Kathimerini has revealed, for a worker to increase their pension significantly by working longer years, they will have to work until he is 100.

Fourthly, the protection of main residences from confiscation is also tied to declared incomes. Whoever wants to protect their home from repossession will need to declare an income that must not exceed a figure that is 70 percent higher than the amount deemed suitable for covering basic needs. In practice, the relevant income is not expected to exceeed 24,000 euros.

These new tax evasion carrots come on top of an entire framework of social policies whose reliability depends exclusively on declared incomes: Free nursery places for children through European Commission-subsidized programs, child allowance (up to 40 euros per child per month), rent allowance for students, the tax imposed on the unemployment benefit, and a number of other benefits depend on stated income.