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COMMENT: Why Greece must develop a permanent plan for future tax reform

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It is no secret that the Greek tax authorities are not exactly up to scratch. Inefficient tax collection and a lack of knowledge in specialist areas such as transfer pricing are just two of the problems preventing the government raising the tax revenue it so badly needs.

These issues cannot be resolved overnight, but what is not helping is that the Greek government seems unable to make up its mind over tax policy itself, let alone how to implement it effectively.

Since 2010, the VAT rate in Greece has risen by four percentage points from 19% to 23% and one of the coalition partners, New Democracy, recently proposed a U-turn on this, suggesting VAT be cut back to 19%.

Former Greek finance minister, George Papaconstantinou, was talking about raising withholding tax on dividends in January 2010, alongside the possibility of changing the corporate tax system.

Last month, there was an unofficial announcement in the Greek media that all political parties were in agreement over a reduction of both the corporate tax rate and withholding tax rate on dividends to 15%.

And if the Greeks themselves are unsure where they are going with their tax regime, how can the country expect to attract the foreign investment it so badly needs?

Multinationals need certainty for the tax regime if they are to invest anywhere and all of this chopping and changing is not helping anyone.

Greece needs to establish a clear tax plan to attract investment if it is to stand any hope of clawing its way out of recession.

The April general elections are hindering any immediate action about this situation but once those are out of the way, the Ministry of Finance must act quickly and decisively.

Cutting corporate tax and the withholding tax rate on dividends to 15% would be a positive step.

As would a reversal of the VAT increase which has given Greece one of the highest rates in the EU, a disastrous decision which has led to high inflation and widespread fraud, pushing individuals and businesses into the black economy.

A senior Greek tax official told the Financial Times last week “we don’t need outside help, we need better computer systems and more co-operation with other government departments.”

But surely Greece must accept whatever assistance is on offer from foreign tax administrations.

Since establishing rules for transfer pricing documentation in 2010, the Greek authorities have failed to apply them efficiently because they lack the expertise required to mount effective challenges to companies.

Bringing in foreign expertise will be vital in training Greek officials to conduct effective transfer pricing audits and this will open up an as yet untapped revenue source for the government.

Greece must establish a concrete tax plan that will help attract investment and it must stick to it.

Once it has this clear roadmap for reform, it can work to stamp out the corruption, improve the efficiency of the tax collection and clamp down on tax evasion.

FURTHER READING:

What a Greek VAT U-turn would mean for multinationals

Why Greek tax reforms will benefit multinationals

Greece plans tax system overhaul

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