International

Greece Bailout To Tax Its Ability To Collect Taxes

One striking aspect of the agreement Greece has reached with the European Union and the International Monetary Fund to stave off disaster for the debt-ridden nation is how much it relies on Greece collecting taxes from its populace.

The Eurozone nations and the IMF have agreed to a nearly $150 billion, three-year bailout package for Greece which will require the Hellenic nation to impose a painful series of measures on a population, many of whom are already taking to the streets to protest even before the true ugliness hits.

It's not just tax increases. The bailout depends on a number of new austerity measures by the Greeks such as reduced pensions and pay cuts for public sector workers.

But Greece will also have to raise and collect VAT and other taxes. And as many experts and commentators have noted, Greeks have a famous problem with tax compliance.

As the New York Times' Suzanne Daley reported:

ATHENS — In the wealthy, northern suburbs of this city, where summer temperatures often hit the high 90s, just 324 residents checked the box on their tax returns admitting that they owned pools.

So tax investigators studied satellite photos of the area — a sprawling collection of expensive villas tucked behind tall gates — and came back with a decidedly different number: 16,974 pools.

That kind of wholesale lying about assets, and other eye-popping cases that are surfacing in the news media here, points to the staggering breadth of tax dodging that has long been a way of life here.

Such evasion has played a significant role in Greece's debt crisis, and as the country struggles to get its financial house in order, it is going after tax cheats as never before.

Various studies, including one by the Federation of Greek Industries last year, have estimated that the government may be losing as much as $30 billion a year to tax evasion — a figure that would have gone a long way to solving its debt problems.

"We need to grow up," said Ioannis Plakopoulos, who like all owners of newspaper stands will have to give receipts and start using a cash register under the new tax laws passed last month. "We need to learn not to cheat or to let others cheat."

On the eve of an International Monetary Fund bailout deal that is sure to call for deep sacrifices here, including harsh austerity measures, layoffs and steep tax increases, many Greeks say they feel chastened by the financial crisis that has pushed the country to the edge of bankruptcy.

But even so, changing things will not be easy. Experts point out that ducking taxes is part of a broader culture of bribery and corruption that is deeply entrenched.

That last point is exactly the question. How does Greece propose to turn this culture of tax avoidance around?

What will be especially difficult is accomplishing this feat at the very worst time, that is, the same time many Greeks will be taking pay cuts.

It just underscores the magnitude of the challenge facing Greece. Making Greece's plight more precarious is that it getting the agreed on package was like pulling teeth since some nations, like the Germans, were resistant to loaning money to Greece in the first place.

So the pressure on Greece to significantly raise its tax revenues is monumental. But its challenge is the very definition of an uphill fight.

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