Part One of a three-part series

(GELT News, December 2010)--I know this must seem a strange title and is probably making many of you raise eyebrows; but it is in many respects quite true. What I am actually referring to is the way that the Greek Ministry of Economy treats the majority of its small companies and self-employed taxpayers. “Greeks don’t pay their taxes,” scream some foreign headlines, “Greeks are all taxdodgers,” highlight others. But is this odium really true all across the board? Yes, we all know about some big companies, with clever, highly paid accountants and lawyers, who manage to escape paying taxes and Social Insurance contributions of millions of euros on mere technicalities, or about electricians and plumbers visiting houses; or the odd doctor who was found to be declaring a subsistence income, but living in a villa, let alone what has been done through nepotism or misuse of political position! But does it really apply to all the hundreds of thousands of little guys, just trying to make a living?

I have always tried to judge with my eyes, rather than just my ears and unquestioningly accepting the third hand gossip of my neighbour as fact. Yes, I have seen non-reporting of taxable income, whether it was a taverna not giving an official receipt, a shop dropping its price if you were willing to forego the receipt or the ubiquitous plumber or electrician offering 2 prices – the first with tax, the second without. But, in the main, it has been petty stuff. You could say a bit of cream siphoned off the top that has become a cultural tradition. On most of their income, I believe the majority do end up paying the taxes asked.

"On most of their income, I believe the majority do end up paying the taxes asked."

When I first opened my language school, in 1984, I had a good friend; a fellow school owner who guided me through the labyrinth of how to deal with the Greek tax system. He explained that prior to 1982 the rule of thumb was you under-declared by 50% and the taxman then doubled it. Honour was saved and everyone was happy. A couple of years later Andreas Papandreou said he would change the system and accept whatever you declared as correct, but that the Ministry would check on 10% of submissions and really throw the book at those who lied. Most of us (in language schools) thought this a wonderful idea; it was so much easier than having to make deals, or offer huge discounts, in order to lower incomes by 50%; particularly since language school receipts were being avidly requested and collected by parents to help defray their own tax bills. So now you could take your fees, issue a receipt and sleep easy, without worrying that your tax bill would be doubled - or so you thought!

The moment of truth, or financial bucket of cold water poured over you, came 10 years after you started business and arrived in a little slip of paper from the tax authorities stating they considered you had under-declared by a certain amount; and usually enclosing a bill that was equal to all the tax you had paid in the preceding decade, charged out at the prevailing tax band (for language schools the tax bracket was then 32% of profits). You gasped, bemused: “but what about the 1982 decision that all declarations would be considered honest unless checked and proved false?” So, like many others, I dutifully trotted along to my area tax office and objected. “Look at my books, look at my receipts, look at my outgoings – salaries and IKA (Social Security) payments and rent.”

We are not interested in your books, we just want the money,” a sardonic tax official told me. “And if you don’t pay it we will examine your books extremely carefully; and if we decide you bought something we don’t approve of – like a potted plant to decorate the school reception area – then we have the power to increase the charge by up to 600%.” I gasped again, looked the guy straight in the eyes and pointed out: “in other words, you’re holding a gun to my head. Pay our demand or we’ll double it.” The sardonic fellow then shrugged his shoulders and smiled at me. At this point I realised that, regardless of all earlier promises made on the subject of honest declarations, the taxman was going to double the reported income. The only difference now was that he took it a few years later!

". . . it was preferable to pay some extra tax on imaginary, inflated earnings than face the tax authority asking for even more at a later date."

The dilemma was how to cope, as it was basically a return to the old system where the taxman doubled whatever you declared. However, now, with honest receipting being implemented, there seemed no way you could avoid paying twice on your declared earnings. There was absolutely no way of returning to the old system of declaring half your earnings. The state was pushing you into thinking of tax evasion simply to survive!

Then I found that if you declared profits at a certain level – for language schools it was 32% (now 30%) of the gross income collected in fees ( a very high figure for schools) – taxman would accept that as an honest declaration. So, that is what many of us did. Sometimes I had to throw out deductible invoices to achieve the target, but it was preferable to pay some extra tax on imaginary, inflated earnings than face the tax authority asking for even more at a later date.

However, I have now received (along with the thousands of others who either have, or have ever had, official receipt books) another slip of paper asking me to pay an amount exceeding all the tax I have been assessed for the past decade. Le plus ca change, le plus c’est la meme chose (the more it changes, the more it remains the same), as the French say. Alas, it is sometimes very difficult being honest and allowed to pay just your fair share of tax in Greece as its tax authorities don’t seem to want to let you do that. Recently, I have seen horrendous tax bills sent; not only to active companies, but also small-timers like a part-time photographer who had earned only €9,000 over a 2 year period and a woman who had closed her company, but was assessed for later earnings that had never taken place!

Salaried people don’t face this problem; no government disputes what their employers declare they pay them. But all the self-employed and small companies (who can’t afford highly paid, whiz-kid accountants and lawyers) are constantly treated as tax-evaders from the moment they start business and, unless they can find a way of successfully presenting their accounts, they are going to be assessed at tax percentages higher than those applied to companies or individuals earnings hundreds of times more.

This is the point at which the culture of tax evasion starts in Greece; in the majority of cases I believe it is simply a way of bringing tax demands down to a reasonable level; a necessary coping mechanism for survival. What do you think would happen in all those other western countries that like to point a finger at us if their tax authorities suddenly sent them bills equal to all they had paid in the previous decade and pushing their tax brackets to 60% of all gross, untaxed income when they are actually taking home less than €18,000 per annum? I believe there would be hundreds of depositions to the EU Court at The Hague, if not bloody demonstrations in the streets.

". . .what can the small Greek companies and self-employed individuals . . . do to get fair treatment?"

How can you possibly run any kind of business if you can’t forecast what level of taxation you will eventually have to pay? How can you be competitive, let alone manage to keep your head financially above water when you are selling products which have relatively fixed prices, if you are faced with double taxation on take home profits of under €20,000 ($25,000). Furthermore, all this unnecessary financial juggling just takes time and effort away from your prime business intent of providing the best service or product you can in your field.

Greece has been accused of rampant tax evasion for decades; and many citizens would like to change that state of affairs. But it is going to be extremely difficult to implement if the Government, through its tax departments and its iniquitous doubling of taxes paid every decade, does not allow us to act fairly and honourably. To achieve honesty the State has to set an example. By all means be very harsh with those who are defrauding the State, but don’t ‘tar the honest guys with the same brush,’ too. – ie. those who do not wish to, or those cannot cheat even if they wanted to! The State must start learning the painful lesson of looking at itself in the mirror and learning to treat others as it, itself, wants to be treated.

Read more articles by Andrew Leech

In conclusion, I do not think the average Greek objects to paying taxes any more than any other national. We live in society, we take from society and it is our duty to fairly contribute to that society we live in. But many of us do object to paying double taxes. America felt strongly enough to go to war with Britain over this issue in 1775, but what can the small Greek companies and self-employed individuals (who, by the way, provide most of the jobs in the Greek Economy) do to get fair treatment? There must be real and believable reform in the tax system, on the part of the state before individuals are going to feel they are contributing fairly and being treated fairly. Historically, small entrepreneurs have always been made to pay more than their fair share, due to their inability to fight or protest, but does that make it any more just?

Part Two: Scrootzos--Christmas and the Greek Taxman

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(Posting date 21 January 2011)

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