The new tax bill that should be ready by June will introduce considerable changes to the existing system, heeding the requirements of the country’s official creditors.
Pending some fine-tuning during the public consultation process, the new tax system will include changes to the income tax rates and brackets, the abolition of special income tax and value-added tax rates for remote islands and changes to property taxation.
The aim of the new system is to contain tax evasion and to bolster public revenues that having been missing the budget targets for years.
The tax measures that the eurozone and the International Monetary Fund have dictated for Greece include the following:
- The abolition of tax exemptions and the special privileged status for certain categories. This entails an end to the VAT discount on eastern Aegean islands, as well as reduced tax rates for the incomes of those who live on islands with fewer than 3,100 inhabitants, and the 50 percent increase in the tax-free threshold for people living on islands with fewer than 3,100 inhabitants.
- Greece’s creditors want the country to adopt a flat VAT rate. The IMF’s technical mission has proposed that the low and middle VAT rates of 6.5 percent and 13 percent should be abolished and the high rate of 23 percent be replaced by a flat rate of 19 or 21 percent. Such a measure would bring about price hikes in drugs, food, utility bills, public transport and taxi fares etc.
- Property taxes are set to be merged to simplify the process and reduce evasion. A likely scenario provides for the combining of the property tax with the special property levy paid through via electricity bills. If approved, it will apply as of 2013.
- Income tax will be simplified. The IMF mission proposed an end to the tax-free ceiling and its replacement with a tax reduction, the reduction of the income brackets, the simplification of the way banks’ taxable earnings are determined, and the abolition of the exemption of bond interest for banks and insurance companies.