The vicious cycle of Greece’s tax system

Need for more taxation feeds tax dodging, which cuts revenues, which increases the need for more taxation

The excessive taxation of taxpayers and businesses in the last few years has led to a vicious cycle: Tax evasion is growing, taxes are increasing and revenues are dropping. One result of this is that just 1.6 percent of taxpayers, or 120,000 people, have to pay 2.7 billion euros or almost 30 percent of total income tax.

According to a survey by Dianeosis, the Greek state misses out on 16 billion euros every year, which would amount to 32 percent of the annual state revenues.

The inefficiency of the tax collection mechanism, overtaxation, and Greece’s complicated legislation, with thousands of laws, decisions and circulars, are the main reasons why tax dodging keeps growing in spite of the tough measures enacted in the years of the crisis. The Dianeosis survey attributes the above factors to the tax policy and the general political environment in the country, while also pointing to the absence of genuine political will in combating the phenomenon.

The impressive data collected by the Association of Administrative Judges show that from 1975 to 2015, Greece passed 250 tax laws and amendments, along with some 115,000 ministerial decisions. In the last 30 months alone, Parliament has approved six purely tax laws with 177 articles, and another 17 laws that included 71 tax clauses. For those clauses, 111 ministerial decision and 138 explanatory circulars were issued.

The Dianeosis report showed that the number of taxpayers declaring incomes around the taxfree threshold of 12,000 euros per year amounted to 49 percent of Greeks in 2011, and they paid 1 percent of taxes. In 2014, the share of taxpayers at that income level rose to 68.9 percent, paying 11 percent of taxes.

In 2011, about 43 percent of taxpayers declared incomes of be- tween 12,000 and 42,000 euros and their tax payments accounted for 30 percent of all tax due. Another 8 percent declared incomes of more than 42,000 euros and paid 69 percent of total taxes, while three years later those earning over 42,000 euros dropped to 1.6 percent and paid 29.5 percent of taxes.

A key conclusion stemming from these figures is that the crisis has made taxpayers’ incomes shrink considerably and that overtaxation has sent tax evasion soaring.