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Shadow Economy in Greece at 20.9 Percent of GDP, Central Banker Says

Greece shadow economy
Studies estimate that the size of the shadow economy in Greece amounts to 40 billion euros per year. Credit: Greek Reporter

The size of the shadow economy in Greece reaches 20.9 percent of the country’s Gross Domestic Product (GDP), Bank of Greece governor Yannis Stournaras said on Tuesday.

Shadow economy consists of transactions between individuals, or individuals and businesses, without being registered.

It includes bribes to state officials, merchandise bought and sold in cash with no records showing, businesses and individuals providing goods and services without issuing receipts, money not declared for taxation and so on.

Shadow economy, which Greeks call “black money”, can range from paying a babysitter in cash, or waiters not declaring their tips, to illegal arms sales and money laundering.

Addressing the 19th Tax Forum, the central banker said that the problem of tax evasion is an international one, but noted Greeks spend €40 billion more than they declare as income.

In the period 2015-21, this excess spending ranged from €36 billion to €49 billion, the central banker said.

Total declared income for 2021 was about €84 billion, of which 79% came from salaried workers, including merchant marine employees. These categories, who can’t hide their income, which is taxed at its source, pay disproportionately high taxes.

About 70% of taxpayers engaged in a form of business activity, or who are self-employed declare annual incomes less than €10,000. And 37% of individual taxpayers declare income of up to €5,000.

In Greece, despite the fact that it is difficult to assess the exact size of tax evasion, several surveys highlighted that the problem is bigger than in other countries and as a result, it should become a priority to combat tax evasion and promote a more fair distribution of tax burdens.

Stournaras said tax evasion was more evident among self-employed and very small enterprises, but tax evasion was notable also in indirect taxation with Greece recording the fourth highest VAT gap in the EU, equal to 19.7 percent of total VAT (or 3.0 billion euros).

The central banker recommended six measures to deal with the problem:

  • expanding the use of e-transactions and the use of POS,
  • offering incentives for payments through debt cards and through banks,
  • offering incentives in the form of tax exemptions to reveal transactions in sectors of high tax evasion practices,
  • upgrading electronic tools of the Public Revenue Independent Authority,
    simplifying the tax system and intensifying efforts to cultivate tax consciousness.

Greece to Pay Citizens €3,000 for Reporting Tax Evasion

On Tuesday, Greece’s Ministry of Finance announced an initiative to offer citizens a bonus of up to 3,000 euros for reporting instances of tax evasion.

The incentive is part of a broader movement to strengthen tax compliance and transparency in the country’s financial system.

To ease the reporting process, the Independent Directorate of Revenue (AADE) previously introduced a mobile app called “appodixi” that allows users to scan QR codes on receipts to identify potential cases of tax evasion.

Reports can be submitted anonymously or with the whistleblower’s identity revealed, depending on the user’s preferences.

The shadow economy in Greece amounts to 40 billion euros per year

A recent study by Eurobank’s Department of Economic Analysis and Research estimated that the size of the shadow economy in Greece amounts to 40 billion euros per year, corresponding to between 20 percent and 30 percent of GDP.

“Although the exact measurement of its extent is – by nature – difficult to impossible, we attempt an indirect assessment, observing the reflection of tax evasion in other economic figures”, the study noted.

Eurobank said that the total income declared by households in their tax returns falls significantly short of their consumption based on Hellenic Statistical Authority-ELSTAT’s national accounts data.

Another indication of the size of the underground economy is provided by the labor market data, as there is a significant difference of 17 percent between the level of employment as reflected in the ELSTAT labor force survey and the employment that would be consistent with the data for the GDP.

The study said that of the 84 billion euros of income declared for the tax year 2021, 66 billion euros (78%) came from salaries and pensions and only 4.3 billion euros (5%) from business activity. 80 percent of households that have a business activity declare incomes of less than €10,000.

Related: Greece is World Champion in Shadow Economy, at 21.5% of GDP

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