Greece's former tax collection chief just told us why the country has such a massive tax evasion problem

Harry TheoharisMike Bird, Business InsiderHarry Theoharis, former Greek tax chief turned To Potami politician, wearing a

ATHENS, Greece — Being the person ultimately in charge of collecting taxes and cracking down on evasion in Greece is not an enviable task.

It was a job given to a man called Harry Theoharis, who was the head of the country’s tax collection agency until last year. He tried to focus on reforming the country’s revenue system, so that Greece could better deal with its crippling fiscal crisis.

But in June 2014, after just 17 months, Theoharis resigned.

In an interview with the Telegraph at the start of the year, Theoharis said people were so angry about his attempts that they threatened to “break his legs” during his tenure.

Theoharis is also now an MP for To Potami, a centrist and pro-euro political party that sprung up and performed particularly well at the last election. We met at his party’s busy HQ on Monday in Athens.

The size of the tax evasion problem facing Greece is worth “roughly about 6% of GDP compared to the average of other countries,” he said.

The issue has been exaggerated in media, he added, but “the kind of changes that are required are really underestimated.”

An extra 6% of Greek GDP may not sound like a lot, but it would amount to more than €10 billion in taxes collected — a figure that makes Greece’s immediate debt repayment needs look like a less pressing issues.

Theoharis says that tax dodging is more common among Greece’s self-employed and small companies.

“Greece has a lot of self-employed, who are much better at tax evading than employees, which is common in every country,” he said. “But we have two to two and half times more self-employed than other countries. So even if we were on par for tax evasion with other countries, we would have two to two and a half times more just because of that facts.”

He added: “Out of the 6% of GDP that explains about 3% of tax evasion, about half. Not just self-employed but small companies as well, they can tax evade more easily with lax accounting.”

I’ve read about these astonishing statistics before. Self-employment is surprisingly prevalent among the professional middle-classes in Greece, people who might well be employees in other countries.

Self-employed Greeks spend 82% of their (reported) monthly income on debt servicing, according to a 2012 University of Chicago paper. That’s an absurdly high number, and suggests that most had little left to live on after the repayment.

For “lawyers, doctors, financial services, and accountants,” the authors found that over 100% of their reported income supposedly goes on debt repayment — if the figures were correct, those well-paid, middle class professionals would literally have nothing (less than nothing) to live on.

Theoharis went on:

The second thing is the fact that the numbers are skewed because of the shipping industry in Greece. The shipping industry is taxed less in every country… Both for the ethical basis of taxing it — imagine shipping something from Germany to China, and it’s the company’s in Greece, it’s not easy. In all countries they tax shipping less.

The fact that the Greek shipping industry is so big compared to the rest of the economy skews the numbers, that’s another 0.5% to 1% of GDP.

And the rest, 2 to 2.5% of GDP is really down to tax administration.

I pressed him about Syriza’s mooted plan to clamp down on tax evasion with “undercover tax inspectors,” including tourists, who could be wired up and sent round to retail businesses, building up evidence of improper practices.

He wasn’t thrilled:

It’s the wrong problem… The problem isn’t finding the shops or corporations evading tax. It’s really doing something about it and having the will, for example, to close them for a month.

If you can’t do that for social or political reasons, because it’s unacceptable, it makes no difference if you’ve found them.

A slightly grumpy guy at the desk didn’t want me taking pictures around the office, but he let me take this picture of a poster featuring Stavros Theodorakis, To Potami’s leader:

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