Sunday, October 23, 2011

2012, here we come.... (#19)

At 12m, the population of Greece is roughly equivalent to that of Guatemala, though the Greek economy is around four times as large. This hasn't stopped the denizens of that Mediterranean land from running their taxation system along Third World lines.

While researching Boomerang in Athens, Michael Lewis had a coffee with a disgraced, formerly whistle-blowing tax inspector who made a point of pointing out how the waitress in the smart hotel cafe in which their interview was being conducted, had singularly failed to supply the author with a receipt.

Sales tax avoidance is of course rife here in Guatemala, though the standard method is a little less flagrant; one could even say a little more sophisticated. For many of the retailers in this town (big international operators like McDonalds included) provide customers with receipts which appear to have been printed using ink which fades to illegibility within a day or so of the purchase.

In Greece as in Guatemala, sales tax is only so important because only a minority are in a position where income tax is much of a bother to them. (Usually only salaried employees). Lewis explains how Greece has the largest number of 'self-employed' workers in the Eurozone, most of whom, including surgeons earning millions of euros have no problem reporting their annual income as €12,000 thereby entitling themselves to the 0% tax rate. In fact two thirds of Greek doctors pay no income tax at all, though presumably they have to expectorate the odd bribe or two.

There are laws against tax avoidance in Greece, but enforcing them would apparently mean imprisoning almost every single doctor in the country. And quite possibly each and every member of the 300-strong Greek parliament as well, because it has been revealed that not a single one of them is being taxed on the real value of their properties. And we Brits were indignant when our MPs started building duck ponds off the back of their Parliamentary expenses!

The similarities with Guatemala reemerge when Greece's system for taxation based on real estate values are considered, though the Greeks also lack a proper national land registry. Properties have a computer-generated 'objective' value and as prices have risen these have tended to stay static. The difference is usually paid in cash, with only the formula-driven value reported to the revenue collectors.

Here in Panorama, real estate values have increased quite dramatically over the past thirty years since our colonia was founded. Many of the original residents would have a real problem paying the annual impuesto de inmueble based on any kind of 'real' valuation, and so a variety of techniques exist for keeping the burden both manageable and, you might say, equitable.

Firstly, any legal documents relating to sales or transfers attempt to preserve the valuation dating back to the 80s. Lots with houses on them are often reported as baldíos for tax purposes. Inheritances can be handled as sales within the family whereby the children are sold plots (often by pre-deceased parents) at bargain prices, which are then solidified in the associated paperwork. And in general Guatemalan citizens like to hold their central and local governments to ransom by not offering up their accumulated tax debts until the last possible moment, in the hope of extracting some sort of special offer such as pay up now and we'll offer you a moratorium on the mora (fine), you can pay by installments etc.

As a consequence of all this the Guatemalan government collects revenues equivalent to just 11% of GDP. Even the Greeks can manage three times that at 33%, but given the fact that their economy is four times as large, one has to assume they have more people in a position to contribute if the inclination somehow grabbed them.

Michael Lewis however concludes that the evasion of taxes is likely to remain endemic in Greece, in part because it's hard to enforce a prohibition against such a widespread abuse, and in part because any cases that do make it to court, take an average of fifteen years to prosecute. As the tax collector reported to him...

"The Greek people never learned to pay their taxes. And they never did because no one is punished. No one has ever been punished. It's a cavalier offence like a gentleman not opening a door for a lady."


Begonia said...

Interesting. I have heard a lot of criticism by the Greeks of their own government, but not a lot of self- criticism for their own lack of taxpaying ways.

I think has also been true of the Guatemalan public. However, as an observer of this year's Guatemalan presidential elections, I have noticed a lot of self-flagellation my Guatemalan Facebook friends, blaming themselves for the electoral predicament they are in.

I was wondering if this is a new trend, or if this happens every 5 years. Have you seen the very self-critical powerpoint that has been forwarded around the e-mail accounts of the Guatemalan "intelligentsia"? It basically says that before the country will improve, Guatemalans need to take responsibility for their own culture and taxes and government, with lots of comparisons to developed nations sprinkled throughout. I wonder what your take on it is.

GC said...

Not seen any of the self-flagellation stuff aside from the usual ¨que nos gobernan las putas pq se ve que sus hijos no pueden" etc.

Will address the cultural issues in next post perhaps...