By Matthew Karnitschnig And Nektaria Stamouli. Wall Street Journal (Online) Feb. 25, 2015 7:31 p.m. ET
Wednesday 9 December 2015, by Carlos San Juan
ATHENS—Of all the challenges Greece has faced in recent years, prodding its citizens to pay their taxes has been one of the most difficult.
At the end of 2014, Greeks owed their government about [euro]76 billion ($86 billion) in unpaid taxes accrued over decades; the government says only [euro]9 billion of that can be recovered, with most of the rest lost to insolvency.
Billions more in taxes are owed on never-reported revenue from Greece’s vast underground economy, which was estimated before the crisis to equal more than a quarter of the country’s gross domestic product.
The International Monetary Fund and Greece’s other creditors have argued for years that the country’s debt crisis could be largely resolved if the government just cracked down on tax evasion. Tax debts in Greece equal about 90% of annual tax revenue, the highest shortfall among industrialized nations, according to the Organization for Economic Cooperation and Development.
Greece’s new government, scrambling to secure another tranche of short-term funding, agreed on Tuesday to make tax collection a top priority on a long list of measures .
Yet previous governments have made similar promises, only to fall short.
Tax rates in Greece are broadly in line with those elsewhere in Europe. But a combination of cultural and historical forces is to blame for Greeks’ widespread aversion to paying what they owe the state. During the country’s centurieslong occupation by the Ottomans, avoiding taxes was a sign of patriotism. Today, that distrust is focused on the government, which many Greeks see as corrupt, inefficient and unreliable.
"Greeks consider taxes as theft," said Aristides Hatzis, an associate professor of law and economics at the University of Athens. "Normally taxes are considered the price you have to pay for a just state, but this is not accepted by the Greek mentality."
Indeed, for most Greeks tax evasion isn’t considered a serious crime and there is little stigma attached to getting caught, unlike in other European countries or even the U.S.
Much of Greece’s tax evasion occurs in the small transactions of daily life.
Kosmas, a 32-year-old chef in Athens, says his income taxes are automatically deducted from monthly paychecks. But every time he buys something and he is given an option to pay less if he doesn’t ask for a receipt, he says yes.
"It is a win-win situation," he said. "I pay less for the products and the store pays less in taxes."
Greeks’ innate resistance to taxation is one reason Syriza, the leftist party now in power , campaigned against the tax increases championed by the previous government in the run-up to elections. The party went so far as to embrace a grass-roots antitax movement called "I won’t pay."
The country’s previous government introduced a controversial new property tax, for example. It led to a sevenfold increase from 2009 levels in collection last year, to [euro]3.5 billion.
But Syriza and other critics assailed the tax as unfair and many Greeks stopped paying it at the end of 2014, partly in anticipation that the new government would change it.
The government’s tax-revenue shortfall in January alone was 23% below its [euro]4.5 billion target for the month.
Last week, the government outlined plans to forgive up to 50% of individuals’ tax arrears, a sign would make good on its campaign rhetoric.
Syriza would risk a popular uprising by the very people who put it into power if it were to back away from those policies and get tough on taxes, political analysts warn.
Even within the government’s own ranks, officials say Syriza can’t risk tougher enforcement.
The reason isn’t just political, but economic.
The country’s depression has already pushed many small businesses to the brink of collapse. Forcing them to pay more in taxes would put even more out of business—and more Greeks out of work.
"The Greek economy would collapse if the government were to force these people to pay taxes," said one senior government official.
Though Greece’s rich have often been singled out for not paying their due, the vast majority of tax evasion occurs at the lower end of the income scale, among small and medium-size enterprises, government officials say.
"Most small companies know they will never be audited so they don’t bother to pay taxes," said a European official sent to help Athens overhaul its tax system.
Many companies report they pay their workers the minimum wage but supplement it under the table to avoid higher payroll taxes.
Dimitra, the owner of a small hotel outside Athens, says she as much as doubles her three employees’ pay during the busy summer months. The arrangement benefits everyone, she says, because her employees get more money and neither side has to pay more in taxes.
"If I had to pay them even more the whole year, I would have to fire one of them," she said.
Other companies give workers store or restaurant credits in lieu of cash.
Areti, a 28-year-old saleswoman says her company gives employees special coupons they can cash in supermarkets, restaurants and for other services.
"It works much better for us because the money isn’t taxed," she said.
Write to Matthew Karnitschnig at firstname.lastname@example.org and Nektaria Stamouli at email@example.com
Credit: By Matthew Karnitschnig And Nektaria Stamouli