Greek Islands No Holiday for Tax Inspectors Chasing Evaders

Tourists in Santorini
Tourists pass bags displayed for sale outside a souvenir store on the island of Santorini. Photographer: Yorgos Karahalis/Bloomberg

As Greeks make their annual exodus to islands and villages for summer vacation, there’s one group hitting those spots for work: tax inspectors.

In the two weeks to Aug. 9, Greece’s tax services conducted checks and audits on 11,232 businesses, with a focus on tourist areas where violations are rampant, the finance ministry says. The checks targeted restaurants, clubs and bars, souvenir shops and other such tourist-oriented businesses in areas including central Athens and the islands of Santorini and Rhodes.

As the government of Alexis Tsipras heads into the final stretch to tie up a third financial rescue from euro-area partners, he is being held to a pledge to clamp down on tax evaders, one of the reasons that led to the country seeking a first bailout in 2010. Alternate Finance Minister Tryfon Alexiadis vowed on July 29 to audit everything “from luxury hotels to the smallest canteen.”

“That’s the way it should be,” said Stavros Papayiannopoulos, 52, who runs a souvenir shop in Monastiraki, in central Athens, selling Cycladic figures, copies of ancient vases, chess sets with ancient Greek themes, such as pieces made up of famous statues like the discus thrower. “We abide by the law, issue receipts and declare all our income. Everyone should. You can’t have a tavern issuing just 100 receipts even though they’ve served 500 tables.”

Tax inspectors aren’t always welcomed. On the island of Rhodes, a team of them was recently heckled and forced to leave under police escort after trying to check if vendors at a church fete were issuing receipts, Ekathimerini reported.

Rampant Violations

Greek officials have been at pains to stress that the country’s financial woes, which led to banks being closed for three weeks last month and restrictions on cash withdrawals for residents, won’t affect the peak tourist season.

Tourism accounts for 17 percent of gross domestic product in a country struggling to emerge from its worst downturn since World War II. In the five months to end-May, income from visitors rose 15 percent from the year-ago figure to 2.2 billion euros ($2.4 billion), the Greek central bank said on July 22.

While visitors with foreign bank accounts are exempted from the restrictions on cash withdrawals, the finance ministry has said it will step up checks in tourist hot spots where under-reporting income and cash transactions among small, often family-run, businesses are commonplace.

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The ministry said in some tourist areas the rate of infringements was particularly high -- about 54 percent -- with most violations occurring in evening hours. Foreign tourists unaccustomed to asking for receipts for goods and services bought in cash, mandatory in Greece, are prime targets.

“I’m not going to get into an argument with someone if they don’t give me a receipt for a 3-euro coffee,” said Jason Smith, a 28-year-old Australian, who has been to Naxos, Paros and Mykonos with his girlfriend. “I’m on holiday.”

Plastic Use

Greece has drawn 25 percent more Germans this year while British arrivals are up 46 percent, and those from the U.S. are up 37 percent, according to the central bank.

“On the islands, because some of the businesses open for only three to four months a year, they want to make as much money as possible to last the whole year,” said Papayiannopoulos.

An unexpected consequence of the capital controls is capping tax fraud: the increased use by Greeks of plastic, particularly debit cards. The shortage of cash has spurred the use of cards and Internet banking, both areas where Greece lags the rest of Europe, according to banking executives.

New e-banking users increased fivefold in July, according to Theodore Kalantonis, deputy CEO for retail banking at Eurobank Ergasias SA. National Bank of Greece SA said Internet banking transactions doubled in July from the previous month and more than 55,000 new users registered, according to Nelly Tzakou-Lambropoulou, the general manager for retail banking.

Shadow Economy

Card use will also cut cash management costs, which range from 0.1 percent of GDP for non-cash societies like Scandinavian countries to 0.4 percent for southern European countries where cash is more prevalent, Tzakou-Lambropoulou said.

Electronic or non-cash payments can help combat the shadow economy, which is estimated to be 22 percent in Greece, even among those unwitting participants, who, for example, pay cash to merchants who under-report sales, according to a study by Friedrich Schneider, professor of economics at the University of Linz in Austria.

Less cash and more plastic could help boost tax revenue by as much as 1 billion euros a year, Kalantonis said.

“The Greek government was mulling imposing a 70-euro per transaction ceiling on cash payments in tourist islands,” he said. “We think that it would be beneficial to consider a general threshold for cash transactions, in favor of containing the black economy and strengthening public finances.”

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