Greece to raise tax on businesses, middle incomes-finmin source

ATHENS Thu Dec 6, 2012 1:52pm EST

ATHENS Dec 6 (Reuters) - Greece plans to tax businesses and middle incomes more in an effort to raise revenues from a tax reform bill it has long-promised its international lenders, a senior finance ministry official said on Thursday.

The European Union and International Monetary Fund have demanded the cash-strapped country reform a tax administration widely seen as corrupt and ineffective before they disburse about 9 billion euros ($11.7 billion) in aid early next year.

But Greece has so far failed to make real progress and disagreements over who should be taxed and by how much has created a rift in Prime Minister Antonis Samaras's coalition government, a mix of leftists and conservatives.

The finance ministry plans to raise the corporate tax rate on profits to 26 percent from 20 percent, said the official, who declined to be named. In dividends, the rate would fall to 10 percent from 25 percent currently.

The ministry's proposals include reducing tax brackets to three from eight and imposing a 40 percent top rate on incomes above 40,000 euros. Currently, the 40 percent tax rate applies to those earning over 60,000 annually and those earning over 100,000 euros are taxed at 45 percent.

"The new tax system is simpler, fairer and geared toward growth," the official said.

The proposals offer some relief to low incomes, as tax exemptions for wage earners and pensioners would be increased to 9,000 euros from 5,000 euros currently for those earning up to 25,000 euros.

Greek press had speculated that the government planned to apply a 45 percent top tax rate on incomes above 26,000 euros and abolish tax credits for dependent children, deepening anger among a public worn down by five years of recession.

On Tuesday, Samaras was forced to dismiss talk that his government had such plans in an effort to bridge differences among his ruling coalition.

The new tax system must generate about 1.1 billion euros of additional revenues from 2014, as part of a 13.5 billion euro austerity package that Greece passed last month to comply with the terms of its bailout.

Samaras has held several rounds of talks with finance ministry officials and Finance Minister Yannis Stournaras was meeting party negotiators on Thursday to discuss the bill before releasing it for public consultation.

Samaras's coalition allies have threatened to block the deal in parliament, saying it would further strain honest taxpayers instead of cracking down on wealthy tax evaders.

"We want our country to fulfill its obligations (towards lenders)" the leader of the co-ruling PASOK socialists, Evangelos Venizelos, said on Thursday.

"But this cannot happen at the expense of wage earners and pensioners, at the expense of children, at the expense of the young unemployed and the self-employed," he said.

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