Greece’s tax system has very high taxation rates that fail to bring in proportionately high revenues, even though the “tax behavior” of its citizens is not significantly different from that of other Europeans, according to a PwC tax summary for May 2016 released on Thursday.
According to the report, tax revenues in Greece fell steadily in absolute terms over time, though rising as a percentage of the country’s GDP, indicating an inability to collect additional taxes in conditions of extended crisis. By the same token, constant changes to taxation parameters and rates appears to have no impact on tax collection levels, the report said.
It advised that the tax system be radically redesigned so that it does not create “economic distortions” and noted that growth will make a major contribution to increasing public revenues, with a 10% increase in GDP leading to an estimated 11.3% increase in tax revenues.
More specifically, it noted that taxation rates were among the highest in all categories but revenue collection was less than or close to average. During the economic crisis, the contribution made by VAT and other indirect taxes remained steady while the contribution of income tax from legal entities and companies collapsed from 15% to just 6% and there was a higher contribution from direct taxes on individuals and real estate.
According to PwC data, the proportion of revenues contributed by indirect taxation was among the highest in Europe at 57%, while 94% of tax revenues in Greece came from indirect taxes, income taxes on individuals and real estate. With the exception of indirect taxation and real estate taxation, there are no signs of overtaxation in Greece when compared to other countries.
The report noted a sharp rise in taxes on real estate in Greece over the last five years, increasing revenues by 2.5-3.0 billion euros. This led to a fall in house prices and deinvestment from the market, the report said.
According to PwC, Greece’s taxation system is parameterized in a way that does not facilitate tax collection, punishing middle incomes and increasing undeclared incomes. There is an estimated 34% deficit in VAT revenue in Greece, indicating significant loss of revenue as a result of tax evasion, tax avoidance and ineffective tax collection mechanisms.
It also notes that revenues from VAT and other indirect taxation, unlike income tax and real estate taxes, are not especially sensitive to changes in GDP.
The head of PwC Greece’s taxation department Mary Psylla said: “It is necessary to intervene in the taxation system. Its performance is generally less than the European average and its distortions make it harder to increase tax collection. Its complexity combined with the ineffectiveness of tax-collection mechanisms are obstacles to both fiscal improvement and growth.”
Source: ANA MPA