Greek Drama continues: high taxes cause a hole in state budget

7 years ago - Published in Finance, Fiscal & Legal

The data breakdown from this year’s tax returns so far confirm what Greece’s finance ministry officials were afraid all along: Declared income from freelancers dropped by 20%, compared to last year.

According to a Kathimerini newspaper report, the tax burden on professionals and freelancers has led to tax evasion. The negative development will not only have an impact on this year’s budget but future budgets too, which has generated concern at the ministry ahead of the third bailout review, especially given the International Monetary Fund’s view that Greece will not be able to achieve the target for a primary surplus of 3.5 percent of gross domestic product from next year.

The potential impact on state revenues has been estimated at more than 1.5 billion euros in the next couple of years, and among the ideas being considered to address this problem is setting a ceiling on the total amount that can be imposed in taxes and contributions.

According to sources from the finance ministry, Kathimerini says, freelancers declared a total income of 3.8 billion euros for 2016 (2017 tax file), compared to 4.7 billion last year (2015 income declaration).

That is, freelancers appear to have earned 900 million euros less, in a year when the economy went better than the previous one, and in other categories of taxpayers there is an increase in income, or an expected slight decrease.

The same sources estimate that the self-employed professionals, knowing that their contributions will be calculated on the basis of income, have taken care of lowering the basis of calculation, i.e. concealing incomes.

This is one of the main reasons why revenue from income tax in July is lagging behind target. While the number of taxpayers who did not pay the first installment of the income tax (due at the end of July) is about the same as last year (about one in three), revenue is lower, because there is less tax on income earned by individuals, than that by businesses.

The problem, analysts say, is that this year professionals and self-employed have formed a low income base, upon which future incomes will be estimated. This will affect revenues and future budget estimates.