The Cabinet on Thursday approved a new draft bill overhauling the tax system, including tougher sanctions to combat tax evasion, such as possible jail time for non-payment of VAT returns exceeding 75,000 euros and income tax above 150,000 euros.

The draft law also foresees the establishment of a financial prosecutor to combat tax evasion cases, publication of the names of large-scale tax evaders and stricter procedures in the selection and inspection of tax agency staff.

The draft law also includes measures to support business activity, such as lower corporate tax rates, changing the withholding tax on dividends and flexibility in VAT payments.

The government will adopt a three-year programme to combat pervasive tax evasion, including specific actions and measurable targets, with the first programme expected to be published by the end of March 2011. Under the draft legislation -- pending ratification by Parliament -- the finance ministry will issue a retail card to ensure greater transparency in consumers’ transactions with businesses.

The finance ministry will also set up an internal affairs department to evaluate tax inspectors' alleged involvement to corruption and bribe taking. It also envisages the creation of a special tax arbitration force aimed to accelerate resolution of tax cases.

The draft tax bill is based on OECD’s directives regarding taxation of global income for individuals residing in Greece for more than 183 days per year.

A corporate tax rate will be cut to 20 pct, valid as of Jan. 1, 2011, down from 24 pct previously, while for distributed earnings a 25 pct withholding tax is envisaged.

The ministry also aims to raise the tax rate on capital gains to 0.002 pct from 0.0015 pct. The new legislation extends for a period of four years, by Dec. 31, 2014, the right to an additional 50 pct discount for R&D spending by enterprises, including cargo centres into VAT status and extending a period of VAT imposition on buildings with unsold residences or commercial areas.

ND on new tax bill

The main opposition New Democracy (ND) party, commenting on Thursday on the new tax bill submitted at the cabinet meeting, spoke of "yet another fragmental and ineffective initiative by the government".

ND's alternate head of the Economy Political Responsibility Sector Yiannis Vroutsis termed the bill a "tax invention" which, as he mentions characteristically, "is based on making penalties stricter, ignoring the fact that the taxpaying capacity of businesses and of citizens has been exhausted."