Greece poised to pass key tax bill to slash budget gap

Thu Apr 15, 2010 1:03pm EDT

* Greek tax law aimed at curtailing deficit

* Tax law targets rich, real estate, tax evasion

ATHENS, April 15 (Reuters) - The Greek parliament approved a tax law on Thursday that targets tax evasion and shifts the tax burden to higher-income earners as Athens seeks to slash its massive budget deficit.

The socialist government hopes the new law, which sets a new top income tax rate of 45 percent and raises taxes on dividends, large real estate holdings and offshore companies among other measures, will boost state coffers and create a sense of social justice among a public facing austerity measures.

"The new tax bill is a revolution for Greece," Prime Minister George Papandreou told parliament, which is expected to rubber stamp the bill late on Thursday. "No government in the past has dared such reforms."

(For a FACTBOX on the measures, click [ID:nLDE63D1S2])

The legislation shifts the tax burden to incomes of more than 40,000 euros ($54,560) a year and imposes stiff penalties on tax evasion as part of Greece's EU-endorsed plan to return to fiscal health within three years.

Under the plan Greece, which could invoke an estimated 45 billion euro EU/IMF aid package to deal with its debt crisis [ID:nLDE63E0HN], must slash its budget deficit to below 3 percent of GDP by 2012, from about 13 percent last year.

"The tax reform underlines how serious the Greek government is about budget consolidation," said Andreas Scheuerle, a Frankfurt-based economist with DekaBank. "Its parliamentary approval will be a milestone in implementing its targets."

The new tax law abolishes a string of exemptions and special tax regimes, such as a flat tax rate on certain professional groups and public sector allowances.

It also increases taxes on dividends, large real estate holdings, short-term stock market gains and offshore companies. A new top income tax rate of 45 percent is introduced, applying to annual incomes above 100,000 euros.

Greece raised its main value-added tax rate to 21 percent from 19 percent last month after the EU said that Athens' previous budget cut plan was insufficient to meet its targets.

Labour unions and professional groups such as lawyers and taxi drivers oppose the changes. Public sector trade union ADEDY has called a 24-hour strike for April 22, its fourth this year.