Greece's Bottom Line: Too Many Tax Cheats

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Greek taxi drivers protest in Athens, March 18 i

Greek taxi drivers shout slogans during a protest against proposed tax reforms in Athens, March 18, 2010. Greece's government has pledged to force all Greeks to declare their full income, which includes measures that would force taxi drivers to issue receipts. hide caption

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Greek taxi drivers protest in Athens, March 18

Greek taxi drivers shout slogans during a protest against proposed tax reforms in Athens, March 18, 2010. Greece's government has pledged to force all Greeks to declare their full income, which includes measures that would force taxi drivers to issue receipts.

The Greek government is vowing to finally crack down on tax evaders as the country reels from an out-of-control debt that has shaken international markets and confidence in the euro. The issue will dominate another summit meeting of European Union leaders in Brussels Thursday.

On top of controversial plans for deep cuts in public sector wages and tax increases, the Greek government — which took power in October 2009 — says a central pillar of economic recovery is getting Greeks to pay all their taxes.

But the new effort faces enormous challenges — including apathy, a culture of tax evasion, as well as bureaucratic inertia and technical obstacles.

Revamping An Outmoded System

Diomidis Spinellis is champing at the bit to lead the fight. The new head of information systems at the Greek Ministry of Finance has faith in cutting-edge technology to catch tax cheats.

"Having undeclared income should not be an option," Spinellis says from his Athens office. He says having a better IT infrastructure can increase the efficiency of the tax collection process and make it harder to escape paying one's taxes.

In addition, he says better technology will reduce bribery of local tax collectors, an endemic problem in Greece.

"If we centralize the collection process and cut out the middleman, you lessen the amount of time taxpayers spend with tax collectors," he says. "That's where corruption takes place. If you don't face each other across the table, it's difficult to change money under the table."

He says the government aims to collect at least 1 billion euros more in taxes this year.

But Spinellis' ongoing struggles to install and implement a new, state-of-the-art auditing, billing and account system underscore the enormous challenges the Greeks face. New auditing has taken a backseat to more than two years of legal wrangling over who provides the hardware.

"The software is ready but there's no hardware in which to run it," Spinellis says.

High Tolerance For Tax Cheats

It's just one of many examples of the huge task the Greeks face in reforming a dysfunctional tax system that was not computerized until 2000. Even today, rural areas rely mostly on paper records.

The government estimates that the underground, untaxed economy in Greece is nearly one-third of gross domestic product, or some 113 billion Euros. That means billions in uncollected taxes.

Costas Bakouris with the Greek branch of the anti-corruption group Transparency International says the Greek tolerance for tax cheating is high. He says the self-employed — carpenters, plumbers, electricians, taxi drivers and the like — are big offenders.

But he says the biggest tax cheats come from high-paid, white-collar professions — doctors, lawyers, architects and engineers who don't provide receipts for their services unless they're asked.

"[I]f they don't provide receipts, they don't declare all their income," Bakouris says.

In Need Of An Attitude Adjustment

Changing public attitudes that too often condone petty corruption and tax cheating will be tough as well.

"We say 'It's unacceptable!' But then when we [catch] somebody we say, 'Oh the poor guy, he has three kids, he won't do it again, leave him alone.' So these [attitudes] have to change," Bakouris says.

But few think it will stop, as long as Greeks continue to lack faith in the state to use their taxes wisely.

Athens University economist George Bitros says a bloated and ineffectual public sector consistently fails to deliver on basic services, large and small, including garbage collection and transportation.

"You pay taxes and you don't get anything," he fumes.

"If the Greek state fails — legally, morally and in every way — then Greeks take the law into their own hands. So if they don't correct the delivery of public services and public goods, every one of us will have an incentive to tax evade," Bitros say.

Small Businesses Suffer

On a recent day, Nikos Ntantalis' bar and cafe in Athens' Psiri neighborhood is mostly empty. He says since the 2004 Olympics business has steadily declined. He can no longer afford to pay his federal or local taxes. Ntantalis says he owes the equivalent of about $50,000.

"Everyone doesn't pay taxes. I have to pay the last two years. I haven't paid them yet. And I'm not sure I'm going to make it," he says.

Ntantalis complains that affluent, politically well-connected Greeks use loopholes, off-shore accounts and old-fashioned bribery to get off paying taxes while small businessmen like him are left to shoulder the burden — or sink.

In any case, Ntantalis says he doesn't worry about getting caught. Few in Greece are ever prosecuted. In 2007 — the latest year for which data is available — only 10 people in the nation of more than 11 million were prosecuted for tax evasion or tax-related crimes, according to the Greek Statistical Office.

Even so, Ntantalis says with a sigh that he may have to file for bankruptcy.

"I'm already dead. I will have to close this place sooner or later," he says. "I feel disappointed, like we're being robbed by some rich guys who run away and all those who are left here are asked to pay all the rest."



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