Market warns of consequences of direct and indirect tax hikes

The government will likely have to brace for a drop in transactions, in declared incomes and therefore in public revenues as a result of increases in indirect taxation and in salary and pension deductions for taxes and social security contributions.

There are plenty of warning signs already suggesting that 2017 will be tough on revenues, particularly a spike in full-time contracts being turned into part-time agreements due to the rise of labor costs as a result of tax and contribution hikes. Notably, although taxes on salaried workers rose in 2016 compared to 2015, there was a much smaller increase in revenues from tax deductions. At the same time, we are seeing a growing number of self-employed professionals closing their books so that they will not have to pay increased social security contributions after these were linked to income, as has already happened with the revenues from the annual professional levy.

Market professionals also warn that a fresh slump is on the horizon in fuel and cigarette consumption, from which the Finance Ministry is hoping to collect 900 million euros via indirect taxes. This is a logical assumption given that in both tobacco and fuel, consecutive tax hikes have led to a decline in consumption in excess of 50 percent.

On tobacco, the new increase in the special consumption tax from January 1, means that 90 percent of the cost of a cigarette pack goes to the state, up from 84 percent in end-2016. Legal sales are down by at least 50 percent, with experts warning that the 20 percent share of the market controlled by smugglers will grow further. The Finance Ministry expects additional revenues of 210 million euros this year from tobacco, though experts warn of losses of 150 million.

The stakes are even higher on fuel, where the state anticipates an additional 772 million euros from its tax hikes. However, 2016 saw a drop of 353 million euros in takings from 2015, and this year already bodes ill as global oil rates have sent retail prices soaring.

There are also doubts regarding revenues from the new tax on landlines – it is supposed to fetch 54 million euros – as well as on pay TV and the excise tax on coffee.