Tax shock! Govt proposes rates of more than 60%

Greek Finance Minister Euclid Tsakalotos is awaiting the response of creditors on Wednesday following his proposal for a tax rate hike for more than 50% for income in 2016. Mission chiefs from the European Commission, European Central Bank, European Stability Mechanism and International Monetary Fund will meet with Tsakalotos in the morning prior to another meeting with Economy Minister George Stathakis who has been called to give an explanation of when and how Greece’s non-performing loans (NPLs) will be placed under the administration of distress funds.

Negotiation sources state that the Greek proposal outlines a multi-speed tax system where taxpayers earning less than 30,000 euros will be burdened with less tax than those earning higher amounts. Wage earners receiving 50,000 to 60,000 euros per year will pay around 60% in income taxes, whereas those earning around 100,000 euros will pay even higher rates.

An official taking part in negotiations said that the highest tax rate will be increased to at least 50% (from 42% in 2015) without the incorporation of the 1-8% special contribution imposed to line state coffers with an additional 290 million euros.

Other sources tell protothema.gr that the plan eyes another 340-350 million euros worth of revenue. The special solidarity contribution will be added, however this may be reduced so that the final burden doesn’t go over 60%. Forthermore, 121 tax deductions will not be abolished despite the fact that the deal in August foresaw their review on account of them costing the country around 320 mln euros per year.

How can tax deductions not be abolished, taxes for medium-income earners not rise but also bring in an extra 340 mln euros by taxing those earning more than 50,000 euros alone?

To convince creditors that it can be done, the Greek side has introduced a new “innovation”. The Ministry of Finance notes that around 50,000 taxpayers with income declarations worth 50,000 euros and more usually have income from other sources as well that aren’t being taxed. It is believed that they are also receiving money from interest rates, rent, share dividends, business fees etc. that are taxed separately, hence taxes will be looked at holistically.

Red loans

Non-performing loans will also be examined on Wednesday after an agreement with the creditors to exempt household non-performing loans from distress funds for the moment. By March 15, however, a decision will need to be made concerning the future of NPLs.