The Absurdity of the Tax System
By: George Pipis
Tags: Flat Tax, Taxes, Taxation, Tax System

The Absurdity of the Tax System

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Our new Constitution is now established, and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes — Benjamin Franklin, in a letter to Jean-Baptiste Le Roy, 1789

A Few Words About Taxes

Taxes exist in almost all societies and can be defined as a compulsory contribution to state revenue, levied by the government on employees’ income and business profit, or indirect taxes, which are levied on goods and services. Taxes can be considered as the income of the government that from this money pays the employees of the public sector, provides programs to help the poor and less fortunate people, provides education and health system, builds roads, parks, provides defense from external threats and so on. It seems that is necessary for every country to collect taxes, however, there are many different tax systems.

Tax Rates and Taxes

There is a belief that the higher the tax rates the higher the amount of taxes collected by the government. Usually, this is not the case. Let’s consider the indirect taxes where VAT increase can cause a decrease in the demand. That’s the reason for the high VAT on tobacco and alcohol. Let’s consider now the direct taxes, which vary across counties. A common phenomenon is companies to change tax headquarters. For example, in Europe, many companies from other countries have set their tax headquarters to countries with lower tax rates like Ireland, Luxembourg, Cyprus, and so on. As a result, the countries with higher tax rates are losing taxes and the countries with lower tax rates are collecting more taxes at the end of the day.

The Insanity of the Greek Tax System

taxisnet

The tax system in Greece is madness. Imagine that the system changes very frequently and there is a platform called taxisnet that is down most of the time. The UX and the UI of the platform is a case study of how unfriendly an application could be. Just to get an idea of how wrong this platform is, think about its name: “taxisnet”, which means, if I am not mistaken, a net of taxis, instead of taxes. In order to tame this monster, you need to have your personal accountant. So, in Greece, instead of having a family doctor we have a “family accountant”. Apart from the accountants, there are“tax technicians”, which are people who are specialized in the tax system and offer you advice about how you can pay fewer taxes taking advantage of complicated “buggy” tax systems.

Extra Income and Taxes

I have many stories to share about Greek taxation, but let me just provide you with a concrete example. Let’s consider the developer Julia who works full-time in the private sector with an unlimited term contract. Julia makes $50K per year: 40% of her income is held by the government for taxes, pension, and health insurance.

Εvery now and then, Julia undertakes some small freelancing projects, making around $3K per year. Also, she writes on Medium where she makes around $1K per year. According to the Greek tax system, she has to be registered as a freelancer, meaning she has to pay around $2K per year minimum, plus she has to pay 24% VAT on her transactions. Furthermore, she has to pay 40% taxes on her remaining taxable income due to her total income. To sum up, from the extra $3K she will end up with $456 which is 15% of her income! Note that in the case where she changes her mind and she wants to unregister, she has to pay extra!

So, what are her options? What should a reasonable person do? In my opinion, there are only two options:

Stop working as a freelancer. This means that the Greek government would potentially lose money. Not declare the extra income and risk it. Again, this implies that the Greek government is losing money.

Flat Tax Rate

Personally, I am a fan of the flat tax rate. I believe that it is fair to pay a fixed rate of around 10–12% regardless of one’s income. In this way, more companies will choose Greece for their tax headquarters and people will not evade taxes. When the taxes are so high, it is obvious people and companies try to cut corners.