Greece Urged to Get Tough on Tax

The Wall Street Journal

By STELIOS BOURAS And PHILIP PANGALOS

ATHENS—Greece's international creditors have called on the country to do more to tackle tax evasion, particularly among wealthier residents, as Athens scrambles to check up on thousands of taxpayers suspected of having sent money abroad illegally.

Tax dodging is estimated to cost Greece about €28 billion ($36.93 billion) a year, roughly 15% of economic output, hampering efforts to restore the country's fiscal health after a debt crisis broke out in late 2009, threatening the country's presence in the common currency zone and plunging the economy into severe recession.

A report prepared by the International Monetary Fund and the European Union said on Monday that Greece will miss five out of 10 goals set for December in relation to audits and tax collection, adding that changes to the legal framework and collection methods could provide a major boost to revenue.

"Considerable arrears remain on the books—€53 billion—of which most likely 15% to 20% could be paid," the report said.

"The mission expresses concern that work being conducted is falling idle and that the drive to fight tax evasion among the very wealthy and the self employed is at risk of weakening."

Greece needs to focus on the cases most likely to produce results, such as those relating to doctors and lawyers, while more immediate results could appear by implementing systems that automatically deduct money owed to the state from taxpayers' banks accounts, the report added.

The report comes as Greece prepares to vote next month on a new tax bill long promised to international creditors in an effort to increase budget revenue, simplify the tax system and curb evasion.

The bill, which imposes higher taxes in wages and pensions and reduces the number of tax brackets from eight to three, is aimed at generating more than €2 billion of additional revenue annually from 2014, and is part of a €13.5 billion austerity package that the Greek parliament passed in early November. Greece is expected to pass a second law overhauling the country's tax system by mid-2013.

The reforms are seen as a precondition from the country's European peers in order to unlock further aid from its second €173 billion bailout, but the high level of taxation also threatens to deepen the country's brutal recession, now in its fifth year.

In the past few months, Greek authorities have detained several high-profile businessmen for owing money to the state as part of a widely publicized fight against tax evasion, but have been slow in prosecuting.

Last week, the French Ministry of Finance re-sent to Greek authorities the so-called Lagarde List—named after a document containing the names over 2,000 Greek HSBC Holdings HSBA.LN +0.80% PLC account holders in Switzerland that was originally leaked by an employee at the bank and passed to Greece in 2010 by France's then finance minister, Christine Lagarde, who now heads the IMF.

Greek authorities have come under media and political criticism for failing to act on the list after it was originally sent two years ago. The list enabled authorities in France, Spain and Britain to recuperate millions of euros in lost tax revenue, but Greek authorities treated it as stolen data and failed to pursue the case after originally receiving it in 2010.

On Monday, Greek prosecutors continued to examine the list with the names of about 2,000 Greeks with Swiss bank accounts and may conclude the first phase of investigations within days.

"My understanding is that the list is being examined and cross-checked, with a conclusion of this phase possible within days," a government official said on condition of anonymity.

Write to Stelios Bouras at stelios.bouras@dowjones.com and Philip Pangalos at philip.pangalos@dowjones.com