Greece struggles to address its tax evasion problem

http://www.theguardian.com/world/2015/feb/24/greece-collecting-revenue-tax-evasion

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The new government of Greece, led by Alexis Tsipras, has promised to tackle tax evasion. It hopes this strategy will yield €3bn ($3.4bn) in the coming months in order to cover part of the cost of its €12bn Thessaloniki anti-austerity programme. This would entail various measures – a gradual increase in the minimum wage to reach €750, an extra month’s income for pensioners receiving less than €700 a month, and various welfare benefits – to help the most vulnerable members of the community.

“If this government thinks it can change the system in a few weeks it is underestimating how complicated it is to collect tax in Greece,” says Haris Theoharis, narrowly elected to parliament for the centrist To Potami party. Between January 2013 and June 2014 he was secretary general for public revenue, a job imposed on the then conservative New Democracy government by the country’s creditors, increasingly irritated by slow progress against fraud and tax dodging.

“In Greece more than two-thirds of the population – private- and public-sector employees – pay tax in the normal way, because it is deducted at source,” Theoharis explains. “The problem is that it’s still too easy for contractors, people in the professions and some big companies not to declare all or part of their earnings.”

He claims the state misses out on between €10bn and €20bn in revenue. Direct and indirect taxation should bring in an average of €50bn a year.

“Even with a low estimate of the amount lost – say €5bn a year – you can see that if we’d been able to collect €5bn more over the past 12 years, that would make €60bn. In other words there would be no debt problem,” says Tryfon Alexiadis, deputy head of the tax collectors’ union, close to Tsipras’s Syriza party.

In 2010, when Greece’s creditors began looking at the state of its tax administration, they discovered, according to a well-informed source, “a situation in which the various tax offices operated almost independently from the central administration. Above all there were serious problems of cronyism and corruption.” This prompted a drive to reorganise the system. The number of staff was cut from 10,500 to fewer than 9,000, and many tax offices were closed, their number dropping from 290 to 120.

“These cutbacks did not make matters any easier. On the contrary. According to the Intra-European Organisation of Tax Administrations (Iota), there is now only one tax collector per 1,127 Greek citizens, whereas in Germany it’s one per 730. And we’re being asked to do a better job with less staff,” Alexiadis says.

“We computerised part of the procedures, organised cross-checking of data between tax returns and the balance of bank accounts. Taxpayers now fill in their return on the internet and pay tax through their banks, which limits scope for corruption,” Theoharis explains. With less direct contact there is less opportunity for misdealing.

“It’s a good idea in itself and it will certainly help reduce petty fiddling,” Alexiadis adds. “But, you know, most Greek tax collectors are not corrupt. The problem is elsewhere.

It’s the protection governing policymakers give their friends and the lack of political will to deal with the very big tax evaders.”

The government has vowed to target this category, asserting that as newcomers they have no political clientele in government departments, nor are they friends with the powerful. The government plans to address the issue of outstanding debt. Taxpayers currently owe €72bn to the state. “With the crisis taxation increased a great deal. It was one of the measures imposed by the creditors to reduce the public-sector deficit. But it led to a lot of tax arrears, people just being unable to pay,” Theoharis admits.

During the election campaign Tsipras promised to make greater provision for negotiated deals, with payment of arrears being delayed. Disregarding the advice of the country’s creditors, the outgoing government had also proposed to introduce a system of 100 monthly payments to settle debts. However, Theoharis says that “unpaid fines make up the vast majority of this debt and they will probably never be paid. They concern companies which simply don’t exist, shell companies opened using forged papers and bogus names.”

Collecting such debt proved the most difficult task for the former secretary general for public revenue.

The first source of resistance was inside the tax administration itself. “Departments sought every possible excuse to justify the fact that the work had not been done. Meanwhile, their supervisors failed to carry out the necessary audits and had no sense of being responsible for revenue actually being collected,” he says. But there were problems at a political level too. “Pressure was exerted. This involved imposing other – social or political – criteria on the work of the administration. For example, I was asked not to be so strict, not to debit funds from offenders’ bank accounts at a time when a general election was looking increasingly likely. We thought the department should do its job independently, regardless of any elections.”

Theoharis even received threats. “[I had] letters or phone calls promising to break my legs, but, according to the police officers tasked with assessing the reality of these threats, my life was not really in danger,” he says.

In June 2014, three years before the end of his term of office, he resigned. “The pressure I was putting on the tax departments to get results has stopped since,” he claims.

“And yet it was beginning to show a return. In 2013 we saw a 32% increase in direct debits on outstanding arrears. That year we achieved 80% to 90% of our collection targets, compared with 20% to 25% previously. We managed to collect much more by focusing on large debtors.” He believes that this effort contributed to the primary surplus reported by the conservative government at the end of 2013.

“In Greece people try to get round tax because they feel that they get a very poor level of public service in return,” says Theoharis. “They need to understand that if tax revenue increases the country’s creditors will be less likely to impose new austerity measures.”

But there is still much to be done to modernise Greek tax administration. “In the past two years we’ve seen 48 laws passed on taxation. Is there any other European country that has changed its tax rules 48 times in so short a time?” asks Alexiadis. The message from the tax collectors seems clear: to do their job, they want an end to crony politics, more staff, effective tools and a stable legal framework.

Tsipras has repeated that combating tax evasion is one of his key reforms. France has already offered technical assistance in this field. To stop resorting to borrowing and international aid, as the new government proposes, Greece must consolidate its assets and increase tax revenue. As a source close to Tsipras puts it: “We should see tax as a tool for regaining our national sovereignty.”

This article appeared in Guardian Weekly, which incorporates material from Le Monde