Sweeping tax overhaul
Athens News, 12 February 2010

>An avalanche of new tax measures unveiled on February 12 stunned Greek taxpayers unaccustomed to such a sweeping overhaul, one which includes major changes to tax brackets, new methods of declaring income as well as incentives for furnishing proof of one’s standard of living.

Following last week’s statement by Prime Minister George Papandreou that the ruling Pasok would take drastic measures to regain the confidence of its eurozone partners and creditors, Finance Minister Yiorgos Papakonstantinou unveiled a tax bill aimed at helping Greece collect an additional 5 billion euros in 2010.

Those funds are expected to go towards reducing Greece’s budget deficit by four percentage points by the end of the year.

"I believe that our European partners, the markets and, above all, Greek citizens, are watching the implementation of the programme the government has announced," Papakonstantinou said during a news conference. "They are waiting to see whether Greece will really do what it must do. And we are proving, with our daily actions, that things that we announced some time ago are becoming reality."

The new measures seek to rally lower-income taxpayers in the battle against tax evasion by forcing them to collect cash register receipts for daily over-the-counter transactions in order to raise their tax-free income allowance.

Citizens will need to produce receipts equal to 30 percent of their declared income in order to ensure that their first 12,000 euros is not taxed.

Up to now 12,000 euros was automatically exempted in all income brackets. However, under the proposed changes, this income tax exemption is to be cut in half, to 6,000 euros. For 2010 onwards, in order to qualify for the original 12,000 euro tax break, taxpayers must furnish receipts totalling 30 percent of their declared income.

Therefore someone declaring 20,000 euros of annual income, in order to qualify for the 12,000 euro exemption, would have to supply receipts totalling 30 percent of 20,000 euros, or 6,000 euros.

The measure on receipts is designed to clamp down on tax evasion by forcing retailers to issue valid cash register receipts for their sales, as well as allowing tax authorities to randomly crosscheck receipts with actual sales declared in corresponding VAT returns.

Papakonstantinou said that cash registers would now have to be installed in all businesses, including gas stations, kiosks, outdoor markets and taxis.

"Consumers will now be motivated to require receipts for their every transaction," he said.

But it remains to be seen whether the measure will also be used to justify a drastic cut in the tax-free income allowance, since a lot of people - especially among the lower-paid - may fail to collect the requisite 30 percent of their annual income in receipts. The reason for this is that major items of consumption are excluded from the incentive to collect receipts.

Receipts and invoices excluded from the tax-exempt threshold are those covering expenses that are declared separately as evidence of objective income (purchase of homes, vehicles or ships), tax-deductible expenses (insurance, rent, medical costs) and public utility services (including mobile telephony).

The tax rate on dividend profits has been increased to 40 percent, while the tax rate on re-invested profits will be reduced from 25 to 20 percent. Currently, distributed profits are only taxed at a flat 10 percent rate.

Other measures aimed at reducing tax evasion include the use of several criteria for the objective determination of minimum income, including number of private cars owned, private schooling, summer houses etc.

There will also be harsher penalties for tax offenders, higher tax rates on real estate owned by offshore companies, measures to reduce cash transactions in the economy, and the offer of a tax amnesty on repatriated capital.

All flat tax rates on certain professional groups (ranging from 5 to 20 percent) will be abolished. The 19 percent value-added tax (VAT) will be applied on hitherto VAT-exempt lotteries, sports betting games and services provided by doctors, lawyers, notaries and other professional groups.

Real estate
After the abolition of the special real-estate levy (ETAK), the system reverts to the annual tax rate on the ownership of large property. Thus property worth 400,000 to 500,000 euros would be subjected to a 0.1 percent tax, and the rate would progressively rise to a maximum of 1.0 percent for homes valued at more than 800,000 euros.

Real-estate value

Tax rate

up to 400,000










above 800,000


To qualify for a 6,000-euro income tax exemption, the value of all bills collected until the end of the year must add up to 30 percent of one's taxable income.

Items included
All purchase transactions for goods and services including taxi fares, outdoor markets, kiosk purchases.

Items excluded
Utility bills: electricity, water, gas, telephone, cell phone.
Tax deductible expenses: rents, medical expenses, insurance.

Steep rise in fuel tax
All sectors using fuel will be hard hit by the government bill tabled in parliament on February 9 for a rise in the special consumption tax on fuel.

The bill provides for a rise in the final price of unleaded gasoline by 0.143 euros per liter and that of diesel by 0.06 euros per liter.

The finance ministry announced on February 9 that the fuel tax increase is expected to boost the budget revenues by 934 million euros in 2010 (714 million euros from the rise in the price of gasoline and 220 million euros from the rise in diesel) "so that Greece approaches the average taxation in the European Union." Nevertheless, Greece was not obliged to adjust its fuel taxes to EU levels before 2013.

The bill also includes special provisions for market oversight in order to avoid tax evasion and the distortion of the market with the use of tainted fuels. The problem is that the fuel hike is expected to push up the prices of basic goods and the production costs in many industries already affected by the recession.