overhaul aspires to fairness
Plus, 26 March 2010
An ambitious tax reform bill, on which the government has staked much
of its credibility by promising to do away with the inequities of the
existing tax system and battle rampant tax evasion, was submitted to
Parliament on Tuesday.
"The goal of tax policy is a simple and fair tax framework with uniform
rules, without unjustifiable exemptions and with priority on fighting
tax evasion ... tax revenues will be channeled with transparency to
activities that redistribute income, create growth, strengthen the
welfare state and improve the quality of social goods such as health
and education," the preamble to the bill said.
The bill sets a tax-free minimum of 12,000 euros of annual income and
a 45 percent top tax rate for incomes above 100,000 euros. Between
the two sums, there is a scale of seven intermediate income brackets
with respective rates ranging between 18 and 40 percent. The tax-free
minimum is increased by 1,500 euros for each of the first two children
and set at 23,500 euros for families with three children. For each
child above three, the increment is 2,000 euros. Compared with the
scale now in force, families earning up to 40,000 euros will enjoy
reductions in income tax and those earning above that amount will be
subject to increases reaching 1,350 euros for incomes of 100,000 euros.
The new rates apply to all taxpayers and existing exceptions - such
as special rates for civil aviation pilots and professional athletes,
and uniform estimates for a wide range of occupations and businesses,
such as taxi drivers, rented rooms, gas stations and street vendors
- are abolished.
To enjoy the full reductions or minimize the increases that result
from the changes, taxpayers will have to collect receipts from goods
and services paid for, whose total value represents 10 percent of income
up to 12,000 euros and 30 percent for income brackets from 12,000 to
The bill also reinstates ownership of certain assets, such as real
estate, pools, cars and boats, as well as expenses such as private
school fees and wages of household help, as proof of income.
The tax deductible from interest paid on mortgages is set at 20 percent,
irrespective of when the loan was issued. Also, the income deductible
from private insurance premiums is set at 20 percent, with maximums
of 1,000 and 2,000 euros respectively for single persons and families.
New entrepreneurs are exempted from tax for profits of up to 30,000
euros annually for three years.
Shops and professionals caught not issuing receipts face prison terms
of up to two months. Not issuing receipts for at least three transactions
can lead to a license being revoked for up to a month. There are heavier
penalties for recurrent violations.
Besides prison terms, tax officials caught pocketing bribes will be
liable to fines between 10,000 and 500,000 euros. Those reporting and
proving the bribes, whether tax officials themselves or private individuals,
will be entitled to 25 percent of the fine. Those reporting instances
of tax evasion will be entitled to 10 percent of the fines.