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The share of the informal economy in 2012 is 24.3% of GDP

13 July 2012 / 20:07:31  GRReporter
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Victoria Mindova

The share of the informal economy in Greece is 24.3% of GDP and the turnover of 20 years of unreported transactions has jumped from 21 billion euro to 27 billion euro in 2011. The country with the lowest share of informal economy in GDP in Europe is Switzerland (7.8%), whereas this percentage is the highest in Bulgaria (32.3%). Professor Frederick Schneider, who is a tax specialist at the Economic Policy Institute in Johannes Kepler, University of Linz presented the data. He spoke at the eighth annual tax forum in Athens organized by the Hellenic-American Chamber of Commerce. This year's forum focused on issues that arise from hyper-regulation and tax unfairness.

Schneider said that the greater the difference between gross and net income of citizens the more likely it is for the informal economy to deepen. High social security deductions and taxes predispose individuals to seek ways of avoiding these costs. "No one is hiding taxes in order to save money. All who evade taxes want to gain something in the short term." A major prerequisite for the development of informal economy is the complex and complicated legal system. European countries are hyper-regulated by default and the more severe cases are on the periphery of the euro area and in the countries of the Eastern bloc. Corruption there is particularly strong. Schneider explained that the system should be simplified and facilitated. The quality of services in the public sector can also affect the deepening or reduction of the informal economy. The more severe the procedures in the public sector, the greater the risk of avoiding the implementation of established procedures.

Schneider gave several examples of how the state can reduce the effect of tax unfairness and informal economy. One of them is tax amnesty. According to the expert, this measure can cut both ways. In Sweden, for example, tax amnesty has had great success as the legislator has imposed severe penalties in case of a violation after the implementation of the measure. The tax expert stressed that amnesty for tax unfairness should be administered once every 25-30 years. If the tax amnesty is applied more often, the state predisposes tax unfair units to continue the evasion of taxes.

The professor added that the recession is also predisposing towards the expansion of corruption. People tend to perform important procedures "the second way", bypassing the bureaucracy, which is detrimental to the real economy. An effective measure to resolve tax offences in Germany is strict supervision and regular monitoring of risk individuals.

"A tax officer with 20 years' experience can easily realise that a taxpayer is most probably hiding income," Schneider said. Tax officials may make a primary documentary inspection and send a letter to the "suspect" on the basis thereof. In it, they describe the reason that has led them to believe that the company or the individual is hiding taxes and state a specific amount corresponding to the unpaid tax, as estimated by the controlling authorities. "If the specified amount is not paid, then an inspection follows. If everything is correct and there is nothing to hide, there is no reason to worry about the inspection. If there is some unreported income or assets, then the person can determine whether the amount required by the tax authorities is greater than the imposed tax or penalty in case of an inspection.

Georgette Lalis, who is the Head of the European Union Task Force for Greece, spoke at the forum too. She is clear that the complexity of tax legislation is one of the main shortcomings of the Greek tax system. Lally believes that constant changes in tax legislation are also a crucial factor, enhancing the instability and distrust of business in the Mediterranean country. "Business cannot feel safe once the legislation is amended every six months. Laws do not cancel each other but pile up on each other." This causes the hyper-regulation, which creates problems even for taxpayers who want and try to be tax fair.

The most serious impetus for restoring economic growth is the tax system, Vivartia Holding Executive Director Nikitas Potoulakis said. Like other businessmen in Greece, he has also stressed that the system does not properly allocate the tax burden among citizens. The main problem is that the fair taxpayers are burdened with the constantly increasing rates. At the same time, the state has failed for decades to cope effectively with those refusing to pay taxes and taking advantage of the gaps in the system so as not to meet their obligations. The businessman insists that lower taxation in combination with an expanding tax base will give a strong boost to the Greek economy. He has stressed that the Greeks do not yet believe in the fair allocation of tax revenues and unless the state regains their confidence, significant tax evasion and tax unfairness will continue to exist.

 

Tags: EconomyMarketsTaxesRegulations
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