Greek Government Set To Unveil Plans For Flat Tax

by Lorys Charalambous, Tax-News.com, Cyprus

16 August 2005

Greek Prime Minister, Costas Karamanlisis is next month set to unveil radical tax reform proposals that could see the introduction of a flat rate of income tax on both corporate and individual income in two years' time, according to reports.

The Greek press reported last month that finance minister, Giorgios Alogoskoufis had drawn up plans for a flat rate of tax to be levied on corporate and individual income at 25%, which the government will look to introduce on January 1, 2007, applying to income earned in 2006. It is rumoured that the minister will announce the plans at the Thessaloniki International Fair in September.

Under the new system, it is expected that the first EUR13,000 (US$15,700) of a person's income will be exempt from tax, up from EUR11,000 under the present system.

Presently, income between EUR11,000 and EUR13,000 is taxed at 15 percent, between EUR13,000 and EUR23,000 at 30 percent and above EUR23,000 euros at 40 percent.

Although Greece continues to face difficulties sticking to fiscal targets - last year's budget deficit was equal to 6.7% of gross domestic product, more than double the 3% ceiling required of members of the eurozone - the government is banking on the new system bringing about an increase in tax revenues by reducing the incentives for tax evasion and making the tax system generally simpler and more efficient.

National competitiveness is also likely to have been an important consideration, given the pro-business tax reforms being carried out in some of the new EU member states. Russia, Poland, Slovakia, Latvia, Lithuania and Estonia have all introduced some form of flat tax system in recent times.

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