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Greek Wealth Is Everywhere but Tax Forms

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.

Steve Allen | Brand X Images | Getty Images

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.

Mr. Plakopoulos, who supports most of the government’s new efforts, admits that he and his friends used to chuckle over the best ways to avoid taxes.

To get more attentive care in the country’s national health system, Greeks routinely pay doctors cash on the side, a practice known as “fakelaki,” Greek for little envelope. And bribing government officials to grease the wheels of bureaucracy is so standard that people know the rates. They say, for instance, that 300 euros, about $400, will get you an emission inspection sticker.

Some of the most aggressive tax evaders, experts say, are the self-employed, a huge pool of people in this country of small businesses. It includes not just taxi drivers, restaurant owners and electricians, but engineers, architects, lawyers and doctors.

The cheating is often quite bold. When tax authorities recently surveyed the returns of 150 doctors with offices in the trendy Athens neighborhood of Kolonaki, where Prada and Chanel stores can be found, more than half had claimed an income of less than $40,000. Thirty-four of them claimed less than $13,300, a figure that exempted them from paying any taxes at all.

Such incomes defy belief, said Ilias Plaskovitis, the general secretary of the Finance Ministry, who has been in charge of revamping the country’s tax laws. “You need more than that to pay your rent in that neighborhood,” he said.

He said there were only a few thousand citizens in this country of 11 million who last year declared an income of more than $132,000. Yet signs of wealth abound.

“There are many people with a house, with a cottage in the country, with two cars and maybe a small boat who claim they are earning 12,000 euros a year,” Mr. Plaskovitis said, which is about $15,900. “You cannot heat this house or buy the gas for the car with that kind of income.”

The Greek government has set a goal for itself of collecting at least $1.6 billion more than last year — a modest goal, Mr. Plaskovitis believes. But European Union officials were so skeptical, Mr. Plaskovitis said, they would not even allow the figure to be included in the budget forecast used in negotiations over the bailout package.

“They said, ‘Yes, yes, we have heard that before, but it never happens,’ ” he said.

Over the past decade, Greece actually lost ground in collecting taxes, even as the economy was booming. A 2008 European Union report on Greece tax shortfalls found that between 2000 and 2007, the country’s average growth in nominal gross domestic product was 8.25 percent. Its taxes grew at just 7 percent.

How Greece ended up with this state of affairs is a matter of debate here. Some attribute it to Greece’s long history under Turkish occupation, when Greeks got used to seeing the government as an enemy. Others point out that, classical history aside, Greece is actually a relatively young democracy.

Whatever the reason, Kostas Bakouris, the president of the Greek arm of the anticorruption organization Transparency International, said that Greeks were constantly facing the lure of petty corruption. “If they go to the mechanic, it is one price without a receipt and quite a bit more with it,” Mr. Bakouris said.

He said his own sister had recently told him that she was uncomfortable asking her doctor for a receipt. “I said that’s crazy,” he said. “But still, that feeling is out there.”

Various studies have concluded that Greece’s shadow economy represented 20 to 30 percent of its gross domestic product. Friedrich Schneider, the chairman of the economics department at Johannes Kepler University of Linz, studies Europe’s shadow economies; he said that Greece’s was at 25 percent last year and estimated that it would rise to 25.2 percent in 2010. For comparison, the United States’ was put at 7.8 percent.

The Finance Ministry believes that the new tax laws, which also increased the weight on income and value-added taxes, have laid the legal groundwork for better enforcement. In the past, the tax code gave many categories of workers special status. Entire professions were allowed to file a set income. For instance, newsstand owners could simply claim that they earned an income of 12,000 euros (about $15,900) and no questions were asked.

Now, most of these exceptions have been eliminated and the tax code has been simplified. It also offers various incentives to make people collect receipts — an important step, officials say, in shrinking the off-the-books economy.

In addition, the tax department is being reorganized so that regional offices will have far less autonomy.

Mr. Plaskovitis said that tax collectors had already begun using technology to crosscheck claims and that they had taken steps like asking luxury car dealerships for list of their clients. A lot of Greeks, he said, listed luxury cars as company cars, a practice that would be challenged in the future. “We do not believe you need a Porsche to sell Coca-Cola,” he said.

Soon, Mr. Plaskovitis said, people will see results. “In the coming weeks,” he said, “we are going to be closing down companies, restaurants and doctors’ offices because they have not paid taxes.”

But how fast progress will come is an open question. The changes have provoked protests and deep resentment in some circles. For instance, the president of the union for doctors who work in state hospitals, Stathis Tsoukalos, 60, calls the loss of a special tax status for his doctors wrongheaded and unfair. He contended that the special low tax rate was given to make up for the fact that doctors received very low pay.

Speaking of the doctors in the Kolonaki neighborhood who claimed small incomes, he said, they may have just opened their practices or bought real estate there with help from their parents.

Whether the country’s tax collectors are up to the task is also unclear. Many Greeks say tax collectors have a reputation for being among the easiest officials to bribe. Some say tax troubles are usually solved in a three way split: You pay a third of what you owe to the government, a third to the collector and a third remains in your pocket.

Froso Stavraki, who has been a tax collector for 27 years and is now a high-ranking official in the union, readily concedes that there is some corruption in the ranks. But she contends that the politicians never wanted toughness.

“The orders from above were to do everyday tax processing,” she said. “We were busy going over forms, checking on those who pay taxes, not those who didn’t.”

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