2.3. Revenue administration reforms
The ability to collect revenues has been hampered by a long history of complicated legislation, poor administration, political interference and generous amnesties, with chronically weak enforcement. To break from this practice and improve the tax and social security payment culture, the Government firmly commits to take strong actions to improve collection, including by taking immediate enforcement action regarding debtors who fail to pay their instalments or current obligations on time and to not introduce new instalment or other amnesty or settlement schemes nor extend existing schemes. These efforts, particularly those aimed at addressing shortfalls in tax collection and enforcement and to create better tax compliance, will be targeted to yield around 0.5 percent of GDP by 2018.
As prior actions, the authorities will pass legislation to establish an autonomous revenue agency that specifies: a) the agency’s legal form, organization, status, and scope; b) the powers and functions of the CEO and the independent Board of Governors; c) the relationship to the Minister of Finance and other governmental entities; d) the agency’s human resource flexibility and relationship to the civil service; e) budget autonomy, with own GDFS and a new funding formula to align incentives with revenue collection and guarantee budget adequacy, predictability and flexibility and a budget procedure ensuring discussions with the General accounting office of the Ministry of finance allowing for the needs of the agency to be taken into consideration; f) reporting to the Government and Parliament.
Furthermore, the authorities, making use of technical assistance, will:
i. Make the autonomous revenue administration fully operational by 1st of January 2017. The authorities will by May 2016 put in place an implementation committee, chaired by the SGPR, which will provide an implementation plan for the agency by end June. The authorities shall by [June 2016] (key deliverable): (a) appoint the Board of Governors, which from the moment of appointment will supervise the process of establishment the agency and the work of the implementation committee. It will also assume responsibility for guiding the revenue administration in the transition period according to the principles of the new agency; (b) adopt, in agreement with the Institutions and in conformity with the agency legislation, measures (i.e. MDs, budget appropriations) to provide for: a one-off injection of resources to address problems facing the agency with the initial stock in terms of both personnel and equipment and to ensure a sufficient level of resources to start to operate effectively; an immediate increase in budget for discretionary operational activities; the adequate appropriation to allow for the recruitments of sufficient staff in the agency in 2016 and 2017 to reduce the vacant positions to a normal level. The authorities will by [September 2016] adopt [priority] secondary legislation of the law (key human resources, budget including procedures) so that the agency is fully operational by 1st of January 2017 with the board of governors to exercise in full all its powers by that time (key deliverable)
ii. Increase the use of electronic payments. The Government will pursue the implementation of the action plan for the promotion and facilitation of the use of electronic payments (through both transfers and cards) and the reduction in the use of cash, with implementation according to its schedule, including adoption of legislation by [June] 2016;
iii. Enhance compliance. The authorities will by June 2016 adopt a fully-fledged plan to increase tax compliance. In particular VAT collection and enforcement will be strengthened inter alia through streamlined procedures and with measures to combat VAT carousel fraud. The authorities will (a) adopt by [May 2016] legislation to accelerate de-registration procedures and limit VAT re-registration to protect VAT revenue; (b) procure in order to allow use by June 2016 the risk assessment software allowing substantially increased detection of carousel fraud;{in the previous memorandum the name of the German company which would provide the software was mentioned} (c) prepare by June 2016 an assessment of the implication of an increase in the VAT threshold to EUR 25,000.
iv. Fight tax evasion. The authorities will by June 2016 produce a comprehensive plan for combating tax evasion based on an effective interagency cooperation which includes: a) identification of undeclared deposits by checking bank transactions in banking institutions in Greece and abroad; b) introduction of a voluntary disclosure program with appropriate sanctions, incentives and verification procedures, consistent with international best practice, and without any amnesty provisions; c) requesting from EU Member States to provide data on asset ownership and acquisition by Greek citizens, and how the data will be exploited; d) pursuing work with technical assistance in tax administration and making full use of the resources in capacity building; e) establishing a wealth registry to improve monitoring; f) concrete steps to ensure the collection of tax on incomes generated on off-shore portfolios of individuals.
v. Focus tax audits on priority cases. The authorities will implement effectively the policy of auditing priority tax cases and this will be monitored through a specific key performance indicator {based on importance rather that seniority.}
vi. Improve collection of tax debt. To improve collection of tax debt the authorities will by May 2016 publish on an update of the list of large tax debtors (key deliverable), and update the list on a regular basis, and implement in 2016, a national collection strategy including further automation of debt collection, [and by November take necessary measures towards the timely collection of fines on vehicles uninsured or not undertaking mandatory technical controls, and of levies for the unlicensed use of frequencies]{the measure has already been announced but not implemented due to its political cost}. The authorities will procure the software allowing for further automation of the debt collection, embracing inter alia fully automatized garnishment procedure to be delivered by [Dec 2016]. The authorities will amend legislation establishing clear criteria of non-collectability to write-off tax claims by September 2016.
vii. Deal with large debtors. The authorities will launch a process ensuring triage of the large debtors on the basis of the analysis of economic and financial data to determine their viability. To this effect they will by [end-May 2016], issue guidance in accordance with best practice defining the method to differentiate tax debtors based on their economic situation and capacity to pay, consistent with the relevant insolvency and debt restructuring regimes, and launch the procurement of a company with relevant experience to assist Large Debtor Unit (LDU) of the tax administration and Single Collection Centre for Social Security Contribution Debt (KEAO) in the triage and they will, if necessary, take all legislation needed to ensure the company will be bound by confidentiality rules and have access to relevant information from tax administration and KEAO. By September 2016, the LDU will finalize a report classifying large debtors according to their economic and financial situation on the basis of the guidelines noted above and proposing corresponding debt collection targets and solutions (such as: liquidation or other enforcement measures, debt restructuring). By [June 2016], KPIs will be developed to measure the efforts made in implementing the various tools used for enforced collection.
viii. Reduce unnecessary litigations. The authorities will reinforce the dispute resolution unit by appointing by [May 2016] its director and deputy and provide by September 2016 a case management system.
ix. Rethink the model of cooperation between Justice and tax administration in the fight against high level tax fraud. The authorities will propose an organization of work and procedures to allow the prosecutors requests to be treated in an efficient way without disrupting the work on risk assessed audits [June 2016]. This will include publishing a circular by the Prosecutor of the Supreme Court to the other prosecutors highlighting the need to focus on priority cases. In order to allow the scarce resources to focus on the important cases, the rules about complaints will be reviewed to ensure that only relevant and substantiated complaints need to be fully investigated.
x. Reinforce fight against smuggling The authorities will reinforce their fight against smuggling by a full and timely implementation of the joint ministerial decision taken to combat fuel smuggling and its measures for locating storage tanks (fixed or mobile) and for installing the inflow-outflow system; the authorities will adopt an anti-smuggling strategy for fuel and tobacco by [May 2016]; and will equip with scanners the three main international ports by [December 2016] (key deliverable){so far, several measures have been tried yet no results have been achieved}.
xi. Enhance custom services efficiency. The Government will streamline pre-customs procedures by [June 2016]. In addition, with the participation of public and private stakeholders, the authorities will update the trade facilitation action plan for the national single window by [May] 2016 and proceed subsequently with its implementation. The Government will make institutional changes for post-clearance audits and restructure the risk analysis department in line with WCO recommendations by [May 2016] and complete the customs reorganisation by September 2016 (key deliverable).
xii. Improve collection and write off of social security debt. By May 2016 the authorities will provide KEAO with access to indirect bank account registry and to tax administration data, and will publish regularly the list of large debtors for social security debt. By [June 2016] the authorities will (i) issue legislation to quarantine uncollectable Social security contribution debt; and (ii) improve the rules on write-off of uncollectible Social security contribution debt.
xiii. Integrate all social security collection functions and transfer to the tax administration. To integrate social security contribution filing, payment and collection into the tax administration by the end of 2017 the authorities will, in order to enhance debt collection, increase as a first step the staffing of KEAO to 600 people by June 2016, notably to strengthen its control capacity, and, as a second step, the capacity of KEAO will be increased to [ ] by […]. By [December 2016] the authorities will create a single SSC debt database managed by KEAO that will encompass information currently processed by all social security funds. The authorities, with a view to integrate the collection of social security contributions, will create a single contributor register in coordination with progress with the pension funds consolidation by September 2016 and adopt a legal framework for joint collection of SSC and PIT by November 2016.
The authorities will continue to improve operations as measured by key performance indicators. Over the medium term authorities will continue the reforms improving tax administration, to be agreed with the Institutions, and taking into account recommendations of technical assistance reports conducted by the EC/IMF.
The ability to collect revenues has been hampered by a long history of complicated legislation, poor administration, political interference and generous amnesties, with chronically weak enforcement. To break from this practice and improve the tax and social security payment culture, the government firmly commits to take strong action to improve collection and to not introduce new instalment or other amnesty or settlement schemes nor extend existing schemes.
As a prior action, the authorities will adopt legislation to: a) on garnishments, eliminate the 25 percent ceiling on wages and pensions and lower all thresholds of €1,500 while ensuring in all cases reasonable living conditions; b) amend the 2014–15 tax and SSC debt instalment schemes to exclude those who fail to pay current obligations, to introduce a requirement for the tax and social security administrations to shorten the duration for those with the capacity to pay earlier, and to introduce market-based interest rates while providing targeted protection for vulnerable debtors (with debts below €5,000); c) amend the basic instalment scheme/TPC to adjust the market-based interest rates and suspend until end-2017 third-party verification and bank guarantee requirements; d) accelerate procurement of software for VAT network analysis and for further automation of the debt collection, embracing inter alia fully automatized garnishment procedures; e) adopt immediately legislation to transfer, by end October 2015 all tax- and customs-related capacities and duties and all tax- and customsrelated staff in SDOE and other entities to the revenue administration; all non-assessed audits reports made by SDOE since law 4321/2015 will be considered as detailed fact sheets to the tax administration.
The authorities commit to taking immediate enforcement action regarding debtors who fail to pay their instalments or current obligations on time. The authorities will not introduce new instalment or other amnesty or settlement schemes nor amend existing schemes, such as by extending deadlines.
Furthermore, the authorities, making use of technical assistance, will:
i. enhance compliance. The government will by October 2015: a) adopt a fully-fledged plan to increase tax compliance; b) develop with the Bank of Greece and the private sector a costed plan for the promotion and facilitation of the use of electronic payments and the reduction in the use of cash with implementation starting by March 2016.; c) publish the list of debtors for tax and social security debt overdue for more than three months.
ii. fight tax evasion. The authorities will by November 2015 produce a comprehensive plan for combating tax evasion based on an effective interagency cooperation which 10 includes: a) identification of undeclared deposits by checking bank transactions in banking institutions in Greece or abroad; b) introduction of a voluntary disclosure program with appropriate sanctions, incentives and verification procedures, consistent with international best practice, and without any amnesty provisions; c) request from EU member states to provide data on asset ownership and acquisition by Greek citizens, and how the data will be exploited; d) renew the request for technical assistance in tax administration and make full use of the resource in capacity building; e) establish a wealth registry to improve monitoring; f) adopt legislative measures for locating storage tanks (fixed or mobile) to combat fuel smuggling; g) create a database to monitor the balance sheets of parent-subsidiary companies to improve risk analysis criteria for transfer pricing;
iii. prioritise action on collectable taxes. By September 2015, the authorities will sign the Ministerial Decision allowing for the extension of the indirect bank account register to provide 10 years of transaction history. By October 2015, the authorities will reduce – taking account technical assistance - restrictions on conducting audits of tax returns subject to the external tax certificate scheme. By November 2015, the authorities will adopt measures to prioritise tax audits on the basis of risk analysis and not, as is now the case, year of seniority (i.e. year of write-off).
iv. improve collection of tax debt. To improve collection of tax debt the authorities will by October 2015 (key deliverable): a) improve the rules on write-off of uncollectible tax; b) remove tax officers’ personal liabilities for not pursuing old debt, and c) propose, and implement in 2016, a national collection strategy including further automation of debt collection, and by November d) take necessary measures towards the timely collection of fines on vehicles uninsured or not undertaking mandatory technical controls, and of levies for the unlicensed use of frequencies; e) issue legislation to quarantine uncollectable Social security contribution debt; and f) improve the rules on write-off of uncollectible Social security contribution debt, and g) enforce if legally possible upfront payment collection in tax disputes.
v. improve collection of Social security debt. By September 2015 the authorities will: a) provide KEAO with access to indirect bank account registry and to tax administration data; b) create a single SSC debt database that will encompass all social security funds. The authorities will implement by end-December 2016 a central registry of contributors in coordination with the pension funds consolidation and complete the integration of social security contribution collection with the tax administration by the end of 2017.
vi. strengthen VAT revenues. The authorities will strengthen VAT collection and enforcement inter alia through streamlined procedures and with measures to combat VAT carousel fraud. They will adopt by October 2015 legislation to a) accelerate deregistration procedures and limit VAT re-registration to protect VAT revenue; b) adopt the secondary legislation needed for the significantly strengthening the reorganization of the VAT enforcement section in order to strengthen VAT enforcement and combat VAT carousel fraud. The authorities will submit an application to the EU VAT Committee and prepare an assessment of the implication of an increase in the VAT threshold to €25,000.
vii. reinforce the capacity of the administration. By October 2015, the authorities will secure the full staffing of KEAO, strengthen control capacity in IKA and reinforce the Large Debtors Unit, to improve its capacity on issues of liquidation and tax collection, and – with highly skilled legal advisers, supported by an international independent expert firm – for the assessment of debtor viability. By December 2015 the LDU will segment commercial debtors with large public debt according to viability status.
viii. strengthen the independence of the revenue administration. The authorities will by October 2015 adopt legislation (key deliverable) to establish an autonomous revenue agency, that specifies: a) the agency’s legal form, organization, status, and scope; b) the powers and functions of the CEO and the independent Board of Governors; c) the relationship to the Minister of Finance and other government entities; d) the agency’s human resource flexibility and relationship to the civil service; e) budget autonomy, with own GDFS and a new funding formula to align incentives with revenue collection and guarantee budget predictability and flexibility; f) reporting to the government and parliament. The authorities will by December 2015 (key deliverable) appoint the Board of Governors and adopt priority secondary legislation of the law (key human resource, budget) on the autonomous revenue administration agency, so that it can be fully operational by June 2016.
The authorities will continue to improve operations as measured by key performance indicators. Over the medium term the Authorities will continue with reforms improving tax administration, to be agreed with the institutions and taking into account recommendations of technical assistance reports conducted by the EC/IMF.