The 500 million euro shortfall that was recoded in July’s public revenue is yet another warning for the government. Not just because if the decline continues for the next months then the infamous automatic adjustment mechanism may come into effect, but because it is illustrated how excessive taxation leads the economy down the usual path of tax evasion and tax avoidance.
The people who trade with businesses and professionals are faced with this on a daily basis. The question they are asked is whether they want a receipt with a 24% VAT or pay 20, 30 or even 40% less. Of course, given the tight finances the majority will opt to pay less, thus supporting tax evasion, whether they like it or not.
However many inspectors are recruited by the authorities, it will be particularly hard to curb a phenomenon which in practice benefits both sides. For decade now, the excessive taxation has turned out to be the main feeder of the black economy. If the capital controls were not in place, to restrict liquidity, then the situation would be even worse.
The only visible solution is the proliferation of credit and debit card in all transactions, while offering incentives to both businesses and consumers. With the Ministry of Finance unprepared and stalling, this solution is taking a long time.
Up to now, all the government does to cover the budget shortfall is to raise direct and indirect taxes. With the economy in a recession and businesses competing to survive, all that excessive taxation achieves is to perpetuate the vicious cycle of revenue shortfall and the necessary resort to additional measures. This will lead nowhere. Neither are public finances improved, nor will economy catch the breathe it so desperately needs…
TO VIMA
