Methods to reduce tax evasion

The OECD estimated in August 2009, the size of the Greek black market to be around €65bn (equal to 25% of GDP), resulting each year in €20bn of unpaid taxes.^[6] This is a European record in relative terms, and in comparison almost twice as big as the German black market (estimated to 15% of GDP).^[7] Another study found that seven out of 10 self-employed Greeks significantly under-report their earnings, with only 200 Greeks declaring incomes of over €500,000. Undeclared income from self-employed Greeks (particularly doctors and lawyers) amounted to €28 billion in 2009, more than 10 percent of the country's gross domestic product that year. The state lost €11.2 billion in tax revenues as a result. Above all, ship owners benefit from dozens of tax exemptions.^[8] A rapid increase in government revenues through implementing a more effective tax collecting system has been recommended but several successive Greek governments had failed to improve the situation.^[7] Implementing proper reforms is estimated to be a slow process, requiring at least two legislative periods before they start to work.^[7]

In 2010 the government implemented a tax reform.^[9][10] In November 2011, the new Greek finance minister Evangelos Venizelos called upon all persons who owe the state more than €150,000 to pay their outstanding taxes by 24 November or find their names on a black list published on the Internet. The government later revealed the list, which also includes a number of prominent Greeks, including pop stars and sportsmen.^[11] In January 2012, Athens was considering the establishment of a 100-strong unit to go after wealthy tax evaders.^[8] The year 2012 also saw the introduction of a duty of non-cash payments for amounts over 1,500 Euros.^[9][10] Meanwhile, the Greek police have established a special unit, which deals exclusively with tax offenses. Germany has offered experts from its financial management and tax investigation office to help build a more efficient tax administration.^[12] However, months later it was not clear whether Greek officials would accept the offer.^[13]

By the beginning of 2011, out of 5,000 cases suspected of tax evasion gleaned from Greek bank records, only 334 have been conclusively settled.^[8] Furthermore, the Greek government has refused to look into a list of 1,991 potential tax evaders with Swiss HSBC bank accounts, it received in 2010 from former French finance minister Christine Lagarde. Initially, officials claimed at various times to have lost or misplaced the information. On 29 October 2012 the government changed its position saying it would not use stolen information to prosecute suspected offenders. Instead, Greek authorities arrested Kostas Vaxevanis, journalist and editor of the weekly magazine Hot Doc, who published the "Lagarde list".^[14] He was charged for breaching privacy laws with sentences of up to two years in prison,^[15] but he was immediately found not guilty in trial.^[16] The list includes an advisor to Greek prime minister Antonis Samaras, as well as a former minister and a member of Samaras' New Democracy political party. The list also contains the names of officials in the finance ministry.^[17] On 30 October the Greek prosecutors received a testimony from the former head of the Financial Crimes Unit (SDOE), Yiannis Kapeleris, that former finance minister Giorgos Papakonstantinou (serving the office from October 2009 until June 2011) never asked him to carry out a detailed investigation into the Lagarde list, and after he had reported the first 10 cases of irregularities to Papakonstantinou he was never instructed to continue searching for other irregular cases nor to open up detailed investigations.^[18] As the wife of a former Economic and Finance minister also appeared on the Lagarde list, a parliamentary committee also ordered this particular case to be investigated in full details on 8 November.^[19][20]

In 2011, the Ministry of Finance stated that Greeks with Swiss bank accounts would either be required to pay a tax or reveal information such as the identity of the bank account holder to the Greek internal revenue services. That solution still had not been effected as of 2015. That year, estimates indicated that the amount of evaded taxes stored in Swiss banks was around 80 billion euros. By then, however, a tax treaty to address this issue was under serious negotiation between the Greek and Swiss governments.^[21][22] An agreement was finally ratified by Switzerland on 1 March 2016 creating a new tax transparency law that would allow for a more effective battle against tax evasion. Starting in 2018, banks in both Greece and Switzerland will exchange information about the bank accounts of citizens of the other country to minimize the possibility of hiding untaxed income.^[23]

In 2016 and 2017, the government was encouraging the use of credit card or debit cards to pay for goods and services in order to reduce cash only payments. By January 2017, taxpayers were only granted tax-allowances or deductions when payments were made electronically, with a "paper trail" of the transactions that the government could easily audit. This was expected to reduce the problem of businesses taking payments but not issuing an invoice;^[24] that tactic had been used by various companies to avoid payment of VAT (sales) tax as well as income tax.^[25][26]

Numerous businesses were required by law to install a Point of sale (POS) device to enable them to accept payment by credit or debit card by 28 July 2017. Failure to comply with the electronic payment facility can lead to fines of up to 1,500 euros. The requirement applied to around 400,000 firms or individuals in 85 professions. The greater use of cards was one of the factors that had already achieved significant increases in VAT collection in 2016.^[27]

Anticorruption measures

Transparency International, an independent corruption monitoring NGO, found that 13% of Greeks paid fakelaki (bribery in the form of envelopes with cash donations) in 2009, which was estimated to account for €787 million in yearly payments.^[7] At the same time it was estimated that roughly €1 billion was paid by companies in bribes to public institutions for avoiding bureaucratic rules or to get other benefits. When calculating all sorts of corruption in Greece, the total amount is estimated to be roughly €3.5 billion per year (equal to 1.75% of the Greek GDP). Compared with corruption levels measured by Transparency International for 160 other countries, Greece ranked at 49th in 2004, was down at 57th in 2008, and slumped to 71st in 2009.^[28]

The government elected in October 2009 had on its agenda to increase the fight against fakelaki and other forms of corruption.^[7] The Inspector General of Public Administration^[29] has started an online census of civil servants. In connection with this census he has uncovered a number criminal offences, including an entire non-existent health authority.^[30]

Business climate

According to the latest Doing Business Report, Greece is among the 10 economies of the world that showed the largest improvement of business climate in 2011/12. It ranks 78 in the Ease of doing business index in 2012, a big step forward compared to the previous year when it ranked 100, a bigger leap in improving its regulatory environment than in any of the previous six years. The authors of the report note that the reasons for Greece's good performance were the implementation of regulatory reforms in the following three areas: 1) It "reduced the time required to obtain a construction permit by introducing strict time limits for processing permit applications at the municipality". 2) It "strengthened investor protections by requiring greater immediate and annual disclosure of material related-party transactions", and 3) it "enhanced its insolvency process by abolishing the conciliation procedure and introducing a new rehabilitation proceeding".^[31]

First austerity package (February 2010)

The First austerity package was a minor austerity package in order to limit the deficit. This event was preceded of the First Economic Adjustment Programme for Greece memorandum. It emerged after the promise of the Greek prime minister in the World Economic Forum of Davos, Switzerland.^[33] He promised that he would take some measures so that the deficit was cut. The package was implemented on 9 February 2010 and was expected to save €0.8 billion; it included a freeze in the salaries of all government employees, a 10% cut in bonuses, as well as cuts in overtime workers, public employees and work-related travels.^[34]

Second austerity package (March 2010)

The Second austerity package included further moves to increase government income, decrease outgoings, and improve the economy. This event was preceded of the First Economic Adjustment Programme for Greece known as memorandum. The package emerged after the rapidly rise of Greek/German 10-year debt yield spread and the downgrading of Greek economy by all United States of America's nationally recognized statistical rating organizations.^[35][36] So, amid new fears of bankruptcy, the Greek parliament passed the "Economy Protection Bill", which was expected to save another €4.8 billion.^[37] The package was implemented on 5 March 2010 and it included 30% cuts in Christmas, Easter and leave of absence bonuses, a further 12% cut in public bonuses, a 7% cut in the salaries of public and private employees, a rise of VAT from 4.5% to 5%, from 9% to 10% and from 19% to 21%, a rise of tax on petrol to 15%, a rise in the (already existing) taxes on imported cars of up to 10%–30%, among others.

Third austerity package and reforms (May 2010)

The Third austerity package came as a result of First Economic Adjustment Programme for Greece known as memorandum that was announced by Greek prime minister on 23 April 2010 and was signed on 2 May 2010.^[35] Changes aimed at saving €38 billion through 2012, representing the biggest government overhaul in a generation.^[38]

Actions included sale of 4000 government-owned companies, limits on "13th and 14th month" salaries, a new rise of VAT from 5% to 5.5%, from 10% to 11% and from 21% to 23% and other cuts to public employee benefits, pension Reform^[39] and tax increases.

It was met with a nationwide general strike and massive protests the following day, during which three people were killed, dozens injured, and 107 arrested.^[38]

Fourth austerity package and reforms (June 2011)

The Fourth austerity package emerged from the deviation of the Greek economic program by targets. It was voted by parliament on 29 June 2011, in the midst of the huge demonstrations and the Greek indignants movement. It is known in Greece as Mesoprothesmo (the mid-term plan). It includes rise taxes for those with a yearly income of over €8,000, an extra tax for those with a yearly income of over €12,000 among others. On 11 August 2011 the government introduced more taxes, this time targeted at people owning immovable property. The new tax, which is to be paid through the owner's electricity bill.

Fifth austerity package (October 2011)

The Fifth austerity package was aimed to ensure the 6th bailout instalment for Greece.^[40][41] The representatives of creditors required Greece to take new measures in order to limit the state expenditures. That was one of the conditions so that the financing of Greek economy to continue normally. The new bill (frequently is called multi-bill) hit mostly the civil servants and the retirees. It was voted by the Greek parliament on 20 October 2011 amid protests. The bill included among other, major cuts of the wages of civil servants through to the definition of a single payroll and cuts for the pensions over 1000 euros.

Sixth austerity package and reforms (February 2012)

The Sixth austerity package emerged from negotiations for austerity measures that would allow further loans, a "haircut" (debt write-off for private debtors), and a second bailout package to prevent sovereign default.^[42] As a result, Greece was granted by the EU a €100bn loan and 50% debt reduction through "private sector involvement" (PSI) as a quid pro quo for future reductions in government spending .^[43] The measures included among other 22% cut in minimum wage that goes to €586 from €750 per month.

Seventh austerity package and reforms (October–November 2012)

The Seventh austerity package emerged as a result of negotiation of Greece with creditors for the definition of a new economic program, the mid-term plan 2013–2016. A first part of the multi-bill was voted on 31 October and concerned the privatisations.^[44] The main part of the bill was voted on 7 November 2012 and includes labour market reforms and budgetary changes such as the total abolition of 13th and 14th month salaries among them.^[45]

Eighth austerity package and reforms (April–July 2013)

The Eighth austerity package included two successive multi-bill with urgent measures so that Greece to receive the new instalment of the bailout package. Both was a requirement of the creditors in order to be given the next bailout instalments. It included layoff of another 15,000 public employees among them school guards and municipal policemen. The first multi-bill was voted by the parliament on 28 April 2013 and the second was voted by the parliament on 17 July 2013.^[46]

Ninth austerity package and reforms (May 2014)

The Ninth austerity package was imported by the government in April 2014 and was approved by parliament on 9 May 2014 with 150 votes for and 119 against. It included provisions about Greek economic policy during the four next years, under the title Medium-term Fiscal Strategy plan 2015–2018. The bill provided freeze of wages and pensions over a period of the next four years, until 2018. Also it provided cuts public sector's expenses such as cuts for the expenses of the Ministry of Health among others.^[47][48]

Tenth austerity package and reforms (July 2015)

The Tenth austerity package emerged from the agreement of Greece with eurozone for a new 86 billion euros bailout over three years. The deal requires the Greek parliament to approve the measures. The first set of new austerity package was voted by Greek parliament on 16 July 2015.^[49] It includes transfer of many products in the high rate VAT (23%) and rise of corporation tax from 26% to 29% for small companies among others. A second set of measures voted on 23 July 2015 that concerns the Code of Civil Procedure.

Eleventh austerity package (August 2015)

The Eleventh austerity package included the bill that concerned the third bailout agreement between Greece and the 'quartet' of creditors (EU, ECB, ESM and IMF). It was approved on 14 August 2015 with 222 votes for, 64 votes against. Another 14 deputies abstained or were absent.^[50][51] The new bill included provisions for the rise of various taxes^[52] and changes in the retirement system.^[53]

Twelfth austerity package (October 2015)

The twelfth austerity package voted in October 2015 and includes the required measures to unlock a tranche of loans worth 2 billion euros.^[54][55]

Thirteenth austerity package (May 2016)

The thirteenth austerity package passed on 8 May 2016 by 153 votes in favour to 144 against,.^[56] It included pension and taxes reforms to the tune of 5.4 billion euros. The measures included pensions cuts, increase of VAT to 24% and others.

The Medium-term Fiscal Strategy Framework 2018–2021 voted on 19 May 2017 introduced amendments of the provisions of the thirteenth austerity package.^[57][58]

Fourteenth austerity package (May 2017)

The fourteenth austerity package passed on 18 May 2017 by 153 votes in favour to 128 against. It included more pension cuts and tax changes.^[59]