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Greece’s efforts to limit tax evasion have little success

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ATHENS, Greece >> The agents from the Financial and Economic Crime Unit slipped in on a holiday evening recently, taking some of the tall seats at the crowded bar in the Three Little Pigs Cafe here.

Soon, however, they were asking customers to show their receipts — an indication that the trendy night spot was paying value-added taxes. But the agents were not satisfied. Armed with a new law devised to help Greece crack down on tax cheats, the agents shut the cafe for the next 48 hours because, they said, receipts were missing. Across the city, other restaurants and nightclubs were also being padlocked, their names showing up in the local newspapers, their front doors sealed for all to see.

The highly visible campaign against cafes and night spots is only one of the many efforts Greek authorities have made over the past year to change what has long been a way of life in this country — rampant tax evasion. But so far, to little avail.

“We have learned a lot,” said Ilias Plaskovitis, the general secretary of the Finance Ministry. “We have had great success in identifying who owes taxes, but much less in collecting them.”

A lot is at stake. Various studies have estimated that Greece may be losing as much as $30 billion a year to tax evasion — an amount that would have gone a long way to solving its debt problems.

Last spring, Greek officials were confident they could quickly improve tax collection. Officials chafed when the International Monetary Fund would allow them to budget only an additional $1.6 billion based on projected increases in tax revenues. It was a figure that Plaskovitis expected would be easily surpassed.

The head of the Financial and Economic Crime Unit, Ioannis Kapeleris, said the agency had issued bills and fines for unpaid taxes totaling $6.5 billion last year, up from $2.2 billion in 2009.

His agents have gone after doctors who claim they are making only $25,000 a year, even though they work out of offices that cost twice that much to rent. They have questioned yacht owners who say their luxury boats are used only for business and used satellite photos to track down those who have not reported their pools on their tax forms, as required.

But payments have only trickled in. Officials said they could not yet say how much tax revenue had been collected because the numbers were still coming in from dozens of tax offices across the country. But, they said, Greece fell $5.4 billion short on its budgeted revenue last year, through a combination of unpaid taxes and a slowing economy.

In fact, tax collection was so poor that the Greek government decided last September to offer an amnesty program, allowing many taxpayers to settle their outstanding debts by paying just 55 percent of the bill. So far, that program has brought in more than $1.5 billion.

But it has also drawn critics, even from within Prime Minister George Papandreou’s party. Critics said it was a sign of desperation that sent the worst of all possible signals if the new government wanted to make it clear that it was serious about tax collection. Past governments have offered amnesties every few years.

“Long term, you encourage people to think that five years from now there will be another amnesty, another discount,” said Costas Bakouris, the president of the Greek chapter of the anticorruption organization Transparency International. “If you really want to change things, you have to be consistent. You can’t say, ‘I’m going to fight tax evasion, but right now I need cash so, OK — never mind the rules.”’

Bakouris said that new laws like the one that temporarily closed the Three Little Pigs cafe — and others that forced citizens to show receipts or pay additional taxes — had tightened the net some. But the amnesty, and a program to allow first-time homeowners to build modest houses with no questions asked about where the financing comes from, has undermined the government’s moral standing.

The new home program is intended to stimulate the economy. But Bakouris said it also “encourages people to launder money.”

However, perhaps the biggest obstacle to tax collection is Greece’s clogged legal system, experts say. Leandros Rakintzis, Greece’s auditor general, said that Greeks could appeal tax levies — and that when they did, it routinely took eight to 10 years before a case was settled. Rakintzis said there were more than 300,000 cases backed up in the system.

Rakintzis also said the tax code must be overhauled before Greeks would willingly participate. Right, now, it offers all kinds of exceptions that lead many Greeks to conclude that it is unfair. For instance, he said, pop singers and athletes pay very low rates — the singers because they were seen as having a lot of expenses, athletes because they have a short professional life.

“For a tax system to work, taxes have to be fair across the board and penalties have to be enforced, which is not the case now,” Rakintzis said.

Nonetheless, officials say, there are some indications that the average Greek is with them.

In 2009, Kapeleris’ agency received 3,500 tips about tax evaders. In 2010, it received 18,000. And overall, there was an increase in the collection of VAT revenue, although there was a reduction in total sales because of the economic crisis. The government has pushed through a small mountain of legislation this year, including new laws that unlock closed professions, restructure state assets that are losing money and remake the pension system.

But Plaskovitis said more was needed. On Monday, a new raft of tax reforms will be submitted to parliament, calling for jail terms of up to 20 years for major offenders. In addition, Plaskovitis would like to see an arbitration procedure to take tax issues out of the courts.

In the meantime, the government has also decided to try outsourcing some debt collection.

 

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