The Absurd Situation in Greece: Mostly Second-Hand and Small Cars After Crazy Tax Laws

No Comments » Written on February 22nd, 2014 by
Categories: Greece
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Greece has had multiple problems in the past, and has required a massive bailout from the EU which has bought its bonds in exchange for a program requiring that the government cut expenses and increase revenues.

The action has resulted in an impact to car ownership. In a post on reddit (HT Madhu Menon), “kirlefteris” says:

Cars are taxed according to engine displacement. Extra luxury tax is also applied by displacement, and not real cost. For owning a car, you must "justify" being able to afford it, by an absurd system of "supposed income", again based on displacement. Anything above the "supposed income" is taxed by 26%.

Anything above 1929 cc is supposedly taxed extra. And then the requirement to “justify” that you have the money is a very interesting concept.

This could be because Greece wants to increase revenue. A lot of Greeks hide Income, like Indians in India. The Government has gotten very strict about finding out if people have high income. They assume that if you can afford a big car, you ought to have that kind of income, otherwise they ding you for taxes.

The other thing is that such a rule prevents outflow of Euros from Greece since most cars are imported. Greece can’t afford a wide current account deficit either - they don’t have a currency of their own to devalue; so they have to finance that deficit by borrowing, and they’ve already gotten a taste of what it is to borrow what you can’t afford to repay.

So what do you do if you’re a borderline case? Like a guy saving for three years to buy his SUV? You just got screwed. So you buy a smaller car, or use loopholes like buying an older car (which, presumably doesn’t result in imports so it’s not too bad). And:

As a result, 90% of the cars on the streets are under 1300cc, and at least 5 or more years old. The realistic dream car is the new Yaris Diesel. The average "good" car is the Suzuki Swift 1.2. The show off/douchebag car is the BMW 316i, and yes, they make 1600cc versions of it.

Luxury car buyers are taxed as if they had that kind of income to support the purchase. So people with luxury cars get very low resale values. And it seems some car dealerships have figured out how to make a profit:

Some Greek car dealers, however, have seen an opportunity. Instead of importing such cars, they now do the reverse, shipping used luxury cars out of the country to Germany and Saudi Arabia, according to George Pappas, a spokesman for Sarakakis, one of the largest car dealerships in Athens.

The most interesting thing is that if you’re a greek resident for five years, you can’t even leave easily:

If an individual who has been a Greek tax resident for five consecutive years, amends his/her tax residency status, he/she will be considered a Greek tax resident and be taxed in Greece on his/her worldwide income for five years following the amendment of his/her Greek tax residency status if the following conditions are cumulatively satisfied:

  • the individual becomes tax resident in any country having a preferential tax regime
  • the individual has substantial financial interests in Greece.

Preferential tax regimes are determined as those in which the tax rate is equal to of less than 60 percent of the Greek tax rate.

So, you leave to come to, say, Singapore, where taxes are 20% (Greece has 42% personal tax in the highest bracket) and you will have to continue to pay Greek taxes as if you were a resident. Of course they can’t enforce this easily, but if you ever have to visit Greece again, they could easily ding you for back taxes.

Basically Greek citizens are paying for their past sins, or that of their government. The problem is that this kind of austerity will simply continue, and Greek citizens will continue to find ways to not pay these taxes. Without people buying luxury cars and expensive things, the top end of the economy (which typically pays most of the taxes, both income and value-added) will simply stall, and revenue to the government will reduce, not increase. They can’t cut expenses by that much, now that they’ve squeezed as much as they could.

The best thing to do is to get out of the Euro and default on the past loans (or to pay in their own currency after it is devalued tremendously). That will guarantee a recession but also guarantee a recovery within five years - like Iceland. Currently it seems like Greece is sitting frozen in a foetal position waiting for something, just anything, to happen.

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