The “institutional memory” and the recipe for the development of the Greek economy

Author: Thanos Niforos
Source: EURO2DAY 17 January 2017

     It is certain that corporate earnings taxation is considered to be the most damaging to a country’s economic growth, since it discourages companies from investing. The situation in Greece. T. Niforos writes.

     The article has been published 17 January 2017 in Greek in

     Business taxation plays a key role in making investment decisions and is therefore a valuable development tool. This is because this type of taxation can also affect the attraction of foreign investment, ceteris paribus, to the extent that other countries are making competitive tax cuts. Taxes paid by an enterprise are an outflow that only exists in the case of profitability (that is, when the enterprise shows a loss does not pay taxes – , it can transfer this loss to future periods and offset it with any gains). Taxes correspond to a percentage of the taxable income of the enterprise, the amount of which is determined by the corresponding legislation.

     For example, in order to calculate the taxable income of a company, interest and depreciation are deducted from its gross profits. Since the method of calculating taxes has a significant impact on the profitability of the investment, when assessing investment projects, all relevant tax provisions should be taken into account. This is because the impact of the tax system on the economy is not only dependent on tax rates but on the set of provisions and procedures involved in tax legislation. From the function of the tax administration to the dispute settlement system.

     In Greece, tax evasion is extensive and its limitation is not a simple matter. Moreover, property taxes, which are considered growth-friendly, have not yet boosted the investment process, contributing significantly to the economic pressure of citizens. Therefore, with the potential for further increases in rates to be exhausted, the reduction in retained earnings tax should be shaped accordingly, in order to stimulate incentives for investment.

     The issue is the development in the primary and manufacturing sector. I also believe that a single income tax rate and a single VAT rate are needed to combat tax evasion and to stimulate demand. It is necessary to create a constitutionally established tax system, which will be a leverage for restarting the economy, creating new jobs, gradually reducing unemployment and exporting human capital and saving Greek businesses.

     Besides, with the optimization of the tax rate, reduced taxation may, after the relevant transition period, yield higher tax revenues, as the reduction in the tax rate can lead to a quantitative and qualitative increase in the tax base. If companies, both current and future, are allowed to grow, expand, hire more workers and spend more capital in their operating areas, tax on their profits and the multiplier of the income of individuals will bring multiple revenues to the state.

     The country is clearly – no doubt – in the international investment map, and this is evidenced both by: (a) the confidence vote given by international investment funds, which closely monitor macroeconomic stability and are phased in or have expressly expressed their wish to be placed on completion of the assessment, both by direct and indirect investment, as well as by the fact that they consider the country attractive due to its huge comparative advantage of its natural environment and its cultural heritage, but also as an important hub for investment with a significant area of  growth in a number of economic sectors such as transport, networks and the digital economy, transit trade, traditional and alternative energy, cyclical economy, agricultural production and processing as well as tourism and property development.

     However, in addition to macroeconomic developments and tax treatment for investors, the most important one is perhaps the elimination of the ambiguity of the institutional framework and the acceleration of licensing procedures.Ensuring that benefits are provided to implement the investment through a clear and visible licensing process with a binding timetable, both by the management and the investor, so as to ensure both flows of a smooth flow of investment and follow-up its completion, and to address the problems that may arise at any stage of the licensing-implementation.

     For investors , stability in legislation and taxation means the difference between profit and loss, and therefore the decision on whether the investor will choose a country for his investment. If there is stability, or at least reasonably expected stability, investors can plan the future development of their investment undisturbed. “Institutional memory” is one of the tools on which the investor will rely, so that he can predict the course of his investment and move on the path he has set.