Greece unveiled key provisions of its tax and its public sector wages reforms on Tuesday, aimed at increasing state revenues and reducing its deficit.
The measures are part of Greece's EU-endorsed plan to return to fiscal health. The following are some of the key changes, as presented by Finance Minister George Papaconstantinou:
TAX BILL
- The upper tax rate of 40 percent will be applied on annual incomes above 60,000 euros ($82,250), instead of the existing 75,000 euro threshold.
- The new tax scale grants tax cuts to annual incomes below 40,000 euros and increases taxation for incomes above that.
- The current 12,000 euro income tax exemption will be kept, but workers and pensioners will need to submit receipts for goods or services to qualify. Receipts will help the tax service do crosschecks and capture tax dodgers.
- Incomes between 12,000 and 16,000 euros are to be taxed at 18 percent, down from the current 24 percent tax on incomes from 12,000 to 30,000 euros. This is intended to help low-income earners.
- The government created six new tax brackets for incomes between 16,000 and 40,000 euros, taxed from 24 to 38 percent. Papaconstantinou has said about 95 percent of individual tax filings are below 30,000 euros.
- The flat tax rate on certain professional groups and public sector allowances, which ranges from 5 to 20 percent, will be abolished.
- Dividends will be added to incomes and taxed at the applicable rates, meaning up to 40 percent. Currently, dividend distributions are taxed at a flat 10 percent rate.
- There will be an increase in the excise fuel tax, expected to boost tax revenues by 934 million euros this year.
- Annual tax on real estate held by offshore firms is to rise to 10 percent from the current 3 percent.
- Undeclared deposits in bank accounts outside Greece can be repatriated at a 5 percent tax rate for six months after the bill takes effect.
- The bill will provide for heavy penalties for tax evaders, ranging from fines to closure of shops and seizure of assets.
Business transactions with a value exceeding 1,500 euros will have to be done through checks or credit cards, not cash.
- Introduction of a new progressive tax on large real estate holdings valued above 400,000 euros.
- Value-added tax will be applied to a wider category of transactions.
- Gradual reduction of non-distributed corporate profit tax to 20 percent, from currently 25 percent, with a 24 percent rate applying in 2010.
WAGE POLICY
- Greek public sector workers will face a wage freeze across the board this year, extending a freeze announced late last year on those making over 2,000 euros a month. Seniority pay rises will apply normally.
- The government announced a 10 percent cut in public sector workers' supplemental allowances, which are added to basic salaries and currently constitute a large part of their total income.
- Public sector employees' gross income will fall between 1 and 5.5 percent.
- State sector pensioners will get a rise of 1.5 percent, in line with the government's inflation forecast for this year of 1.4 percent. Pensioners earning more than 2,000 euros a month will get no increase.
- Managers of state-controlled companies will receive no bonus.
- The private sector holds separate negotiations with employers, but the state sector policy is often used as a guide for collective wage agreements.
- The prime minister, cabinet ministers and top ministry officials will have a wage freeze this year and additional benefits will be cut by 10 percent.
(For a graphic on Greek deficit-cutting plans, click http://graphics.thomsonreuters.com/0210/GR_DFTPLN0210.gif)
(Reporting by Angeliki Koutantou and George Georgiopoulos, editing by Daniel Flynn)
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