Greece’s parliament has pushed through legislation that in effect grants a tax amnesty to millions of citizens, in a move at odds with organizations overseeing the country’s bailout.
The law will allow the government to collect about €2 billion ($3 billion) over the next two years, far short of an estimated backlog of unpaid taxes over the last decade of about €35 billion.
The legislation has provoked sharp criticism, including from members of the governing Socialist party, which pledged when it came to power a year ago to avoid a long-standing practice by governments of agreeing across-the-board tax amnesties every three to four years.
"The fines [in the legislation] are so small they effectively reward tax evasion ... So owners of small businesses and self-employed professionals will go on disputing tax claims, hoping for another amnesty,” said George Florides, a Socialist former deputy minister.
The measure also goes against advice from the “troika” – the European Commission, European Central Bank and the International Monetary Fund – which is monitoring Greece’s progress in meeting targets to reduce its fiscal deficit.
Officials from the three bodies have warned Greece that one-off measures will not solve the country’s revenue problems, according to people familiar with the discussions.
The legislation marks the first time since a three-year bailout package was agreed in May that Athens has taken a different view on deficit reduction measures from that of the EU and the IMF.
But the Greek finance ministry is anxious to raise revenue quickly without resorting to another increase in value added tax, to hit short-term budget targets agreed with the troika.
In spite of two increases in VAT this year and three in excise taxes, revenues increased by only 3.4 percent in the first eight months against a target of 13.7 percent.
Progress with reducing tax evasion has been slower than expected, according to ministry officials.
One London-based investor asked, “If Greece can’t raise taxes, how are they going to pay off their debts? This is a cultural problem that many people outside Greece don’t appreciate.”
The hastily-drafted law has confused many taxpayers, especially the self-employed who often delay paying taxes for up to 10 years by appealing through the legal system.
Costas Georgiopoulos, a self-employed electrical engineer, is trying to calculate the extra tax he will pay under the new revenue-raising legislation. “Two years ago I made a deal with the tax office rather than take my case through the courts, but now it seems I’ll have to pay another fine,” he says.
Thousands of workers such as Mr Georgiopoulos are being forced to pay up in a drive to settle some 2 million outstanding tax disputes involving more than 150,000 engineers, doctors, architects, entertainers and other self-employed professionals.
Politics also played a part in the government’s decision to adopt the law, according to analysts.
With local government elections in November billed as a referendum on the EU-IMF agreement, a move to close a decade’s worth of tax cases could be presented as a piece of structural reform, said a senior socialist official.