Greece: Selected Issues


Greece: Selected Issues

Addressing The Burden Of Tax And Social Security Debt1

Greece’s exceptionally high level of tax and social security debt to the state hinders the efficiency of current tax collection and imposes a drag on economic activity. This paper describes the key drivers of tax and social security contribution (SSC) debt and outlines policy recommendations to address this problem.

A. Characteristics and Evolution of Debt to the State

1. Greece’s tax and social security debt to the state is by far the highest in Europe. It has reached about €115 billion, or close to 70 percent of GDP. Almost half of taxpayers and half of social security contributors (SSC) are in debt to the state. This excessively large debt burden weighs on the balance sheets of companies and individuals, hindering investment, consumption, and the resumption of growth. Moreover, it burdens the already weak tax administration, as tax officials’ efforts are stretched by the large and growing amounts of debt to the state.


Private Sector Debt to the State

(Percent of GDP)

Citation: IMF Staff Country Reports 2017, 041; 10.5089/9781475575743.002.A002

Sources: Ministry of Finance; and OECD Tax Administration 2015.Note: Data for Greece are as of end-November2016 and include social security contribution debt. For other countries, data are as of end-2013, and for Germany as of end-2012.

2. Tax debt represents about 80 percent of total liabilities to the state and is concentrated among a relatively few number of taxpayers. At end-November 2016, tax debt reached €94.2 billion (55 percent of GDP), and the number of tax debtors stood at about 4.3 million. About 85 percent of tax debtors owe less than €3,000 each and account for about 2 percent of total tax debt. In contrast, less than 1 percent of debtors, owing more than €1 million each, account for about 80 percent of tax debt, pointing to a highly skewed distribution of debt among a relatively small number of large taxpayers.


Tax Debt Brackets

(October 2016)

Citation: IMF Staff Country Reports 2017, 041; 10.5089/9781475575743.002.A002

Source: Ministry of Finance of Greece.

3. Tax debt has increased at a rapid pace. Since the onset of the crisis, the tax debt has more than doubled, growing at a rate of about €1 billion per month in recent years. As to its composition, around 40 percent is due to penalties and fines, with less than half on account of direct and indirect taxes. The structure and evolution of tax debt can be explained by a variety of factors:


Tax Debt, 2010-16

Citation: IMF Staff Country Reports 2017, 041; 10.5089/9781475575743.002.A002

Source: Ministry of Finance of Greece.Note: Figures in 2016 are as of October 1.

Tax Debt Composition

Citation: IMF Staff Country Reports 2017, 041; 10.5089/9781475575743.002.A002

Source: Ministry of Finance of Greece.
  • The long recession. The protracted downturn, including the sharp rise in unemployment and reduction in incomes, has hindered taxpayers’ ability to stay current with their tax obligations. But the downturn may have also incentivized tax evasion, to the extent that it was associated with a shift from the formal to the informal sector.2 Moreover, taxpayers under economic strains may have perceived the downside risks of tax evasion (penalties) to be smaller than the potential upside gains (avoiding bankruptcy). The tight credit availability may have also lead taxpayers to use tax evasion as an alternative source of financing (e.g. by not remitting to the government VAT and taxes withheld from customers and employees).

  • A weak payment culture. Tax debt was high in Greece (the highest in the Euro Area) even in the period preceding the crisis, suggestive of a weak payment culture. Since the crisis, tax collection rates—defined as the ratio of collection to assessment, and including penalties and fines—have been on a downward trend, from about 75 percent in early 2010s to 45 percent by end-2015. Another indicator of payment culture is the difference between overall tax liabilities (identified and unidentified) and effective collection, called the compliance gap. Greece’s VAT gap—measured as the difference between the theoretical VAT liability according to tax laws and actual VAT collection—stood at around 28 percent at end-2014, being nearly twice as large as the Euro Area average (16 percent). This points to significant and persistent tax compliance issues, including due to under-declaration of tax liabilities.

  • High tax rates on narrow bases. Rates of all major taxes have been repeatedly increased and are currently higher than in peer countries, making it more difficult for taxpayers to comply with their tax obligations. However, this has not resulted in a commensurate increase in tax revenues, which are lower than in peer countries. Remaining tax exemptions also keep tax bases narrow, burdening a small share of taxpayers with a large tax liability. For example, the generous personal income tax (PIT) credit on wage, pension, and farming income exempts more than 50 percent of wage earners, and together with steep marginal PIT rates, implies that 60 percent of PIT collections are paid by the highest income decile. Such tax policy distortions reduce compliance incentives and contribute to tax debt accumulation.

Tax Rates


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Sources: OECD; and IMF Staff calculations.

VAT applied in addition to higher excise rates.


Tax Rates, 2015


Citation: IMF Staff Country Reports 2017, 041; 10.5089/9781475575743.002.A002

Source: OECD Tax Database.1/ Simple averages of the top marginal PIT rate, combined central and subcentral government CIT rate, and the standard VAT rate for euro area countries.

Tax Revenues, 2015

(Percent of GDP)

Citation: IMF Staff Country Reports 2017, 041; 10.5089/9781475575743.002.A002

Source: Eurostat.1/ Simple average of PIT, CIT, and VAT revenues for euro area countries.

4. Social security contribution debts are also large and increasing rapidly. They currently amount to about €20 billion, or about 12 percent of GDP.3 Most of the debts (close to 9 percent of GDP) relate to the largest social security fund (IKA-ETAM), which has experienced a doubling of the SSC debt level during 2012-15. About 40 percent (1.6 million) of all contributors were in debt at end-2015. Similar to tax debt, the surge in SSC debts is largely due to a weak payment culture and the deep recession, coupled with weak collection enforcement capacity. Also, the system of SSC assessment based on notional income may have worsened the problem, as contributors who earn an actual income below the notional income may not have the financial capacity to stay current on their SSC obligations.

Social Security Contributions Arrears

(Million of euros)

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Source: Ministry of Labor of Greece.

B. Tax Administration Issues

5. Tax administration practices did not alleviate the tax and SSC debt accumulation and may have even exacerbated the problem. Various reforms have been attempted to modernize the tax administration and improve revenue collections, including an overhaul of the tax procedure code, including the redesign of installment schemes and revision of fines and surcharges; institutional reforms aiming to establish an autonomous revenue agency and set up units for large taxpayers, high-wealth individuals, and large debtors; and the creation of the dispute resolution unit aimed at accelerating procedures. However, the reforms did not lead to the expected outcome, either because the design of the measures was not effective (e.g. installment schemes were not targeted, and the autonomy of the tax administration was compromised by continued political interference), or because reforms were not fully implemented (e.g. risk-based audits and the prioritization of debt collection remained hampered by other legal obligations and practices). Limited capacity also constrained reform implementation. As a result, some of the measures that were introduced to address the accumulation of tax and SSC debt were not only ineffective, but may have contributed to exacerbating the problem, as discussed below.

6. First, the system of fines and penalties remains counterproductive, adding to the debt problem. The Greek tax administration imposes multiple and large fines. Although the system of fines was significantly simplified with the introduction of a modern Tax Procedure Code in 2014, the majority of fines continue to be based on the previous complex system.4 Moreover, tax officials remain obliged to impose fines whenever the objective criteria have been met, regardless of circumstances (e.g. companies that already have excessive tax arrears and for which no person has been or can be held jointly liable for the penalties are still subject to fines). As a result, fines and penalties have more than tripled since 2010, and in 2016, the amount of assessed fines and penalties exceeded the amount of assessed current taxes. Such punitive assessments, instead of acting as a deterrent for tax avoidance, have added to the stock of tax debt. For example, about two thirds of 2016 penalties assessed through October are due to reassessments of penalties already in arrears, pointing to the ineffectiveness of such methods and to deep inefficiencies of the revenue administration (also see below).


Assessed Current Taxes and Penalties, 2010-16

(Billions of euros)

Citation: IMF Staff Country Reports 2017, 041; 10.5089/9781475575743.002.A002

Source: Ministry of Finance of Greece.Note: For 2016, the data refer to end-November.

7. Second, the current legal framework prevents the effective classification of tax debt as uncollectible and is overly restrictive regarding debt write-offs. Although recent legislation allows for classification of uncollectible tax debt, procedures are cumbersome and time consuming. For example, debts to the state can be considered uncollectible only if all required investigations have been completed, validating that no assets or claims against third parties of the debtor and persons jointly liable were recorded, no sale of assets could have been annulled, criminal prosecution has been lodged, and the recovery of the revenues is objectively impossible. Completing such a procedure takes significant time. Moreover, the law allows for write-offs or cancellations of such uncollectible debt only if a number of specific conditions are met, related to unsuccessful investigations and enforcement actions. Decisions on the cancellation of tax debts are thus hampered by extensive legal requirements, and also by the fear of personal liability.

8. As a result, Greece lags its peers with respect to debt write-offs, despite most of the debt being uncollectible. The share of tax debt that is written-off in Greece is around 10 percent, lower than in many peer countries and the Euro Area average (of 15 percent).5 This is notwithstanding the very high level of total tax and SSC debt in Greece compared to peers, of which a large part is not collectible. Specifically, about half of the stock of large tax debts—which is more than 60 percent of the total tax debt—is largely owed by debtors in bankruptcy or special liquidation and by inactive companies, while more than 55 percent of tax debt is older than 3 years, for which the collection rate is below 2 percent. And, as noted above, 40 percent of tax debt is due to penalties and fines, for which collection rates are around 1 percent. Similarly, although the legal framework and classification are not well developed yet, a large share of SSC debt could also be considered uncollectable, as more than 80 percent of SSC debt is older than three years, with a collection rate of about 2 percent.

Greece: Large Tax Debts by Types, end-2015

(Billions of euros, unless otherwise indicated)

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Source: Ministry of Finance of Greece.

Tax Debt Stock at end-2015 and Collection in 2016

(By age)

Citation: IMF Staff Country Reports 2017, 041; 10.5089/9781475575743.002.A002

Source: Ministry of Finance of Greece.Note: This chart classifies the stock of tax debt at end-2015 for each period it was accrued, and the collection and collection rate in 2016 from each group of tax debt.

Tax Debt Written Off, 2013

(Percent of debt stock)

Citation: IMF Staff Country Reports 2017, 041; 10.5089/9781475575743.002.A002

Source: OECD Tax Administration, 2015.

9. Third, collection prioritization and enforcement are weak, and untargeted installment schemes have further undermined the payment culture. Lack of adequate prioritization of audit cases, combined with insufficient capacity or ability to enforce debt collection, and with untargeted installment schemes have perpetuated the accumulation of debt. Specifically:

  • Prioritization of cases and statute of limitations: Although recent legislation allows the tax administration to prioritize tax cases, it has not been fully implemented due primarily to capacity constraints (including vacant or frequent changes in key management positions), an overwhelming number of cases recommended by the prosecutor (which have to be processed with priority regardless of their tax recovery prospects), and a fear that perceived neglect of cases would result in personal liability for causing losses to the state. As a result, the tax administration is overburdened by a large volume of audit cases that cannot be processed timely, leading to the tendency to continuously extend the statute of limitations of expiring cases. This adds to the backlog, increases the age of tax debt, and further diminishes collection prospects. Indeed, the statute of limitations has been extended every year for the last five years. About 20 percent of tax debt is older than 10 years, for which the collection rate is 0.1 percent; and about 30 percent of tax debt is between 5 and 10 years old, for which the collection rate is about 0.5 percent.

  • Enforcement actions: The authorities have various tools for enforcement: (i) garnishments, which consist of requesting a third party who holds wages, income, or assets of the tax debtor to directly pay to the tax administration the amounts of tax debts before paying the remaining balance to the tax debtor; (ii) seizures, which consist of freezing debtors’ bank accounts; (iii) auctions, which consist of collecting tax debts through the proceeds of the sale of a property; and (iv) mortgages in favor of the tax administration. However, progress in initiating and completing enforcement actions has been uneven, with only about a half of tax debtors being under enforcement action. For example, while the use of garnishments has expanded in the last two years, other seizure orders have plummeted. Moreover, an inefficient auctioning process of seized real estate due to an excessively high required minimum bidding price deprives the tax administration of an important debt collection tool.6 Capacity to initiate bankruptcy and liquidation proceedings is also very limited, and the legal framework weakens the tax administration’s ability to initiate prosecution for tax evasion. For example, once a taxpayer settles his tax debt and administrative fines, prosecution is precluded irrespective of the initial intention of the taxpayer (i.e. financial incapacity to pay tax obligations vs. deliberate intention to evade taxes). These problems exacerbate non-compliance.

  • Installment schemes: More than 50 tax and SSC installment schemes have been legislated since 2001 and have become increasingly more generous, with longer installments, lower interest rates, and fewer eligibility requirements. This has raised expectations among taxpayers that participation conditions would ease even more in the future, potentially undermining further the payment culture and reducing participation rates. For example, the total stock of tax debt in installment schemes at end-September 2016 was about €5 billion, or less than 6 percent of total tax debt.7 Moreover, in the absence of effective collection enforcement and of a link between the installment program and the debtor’s capacity to pay, drop-outs have been frequent, further undermining the schemes’ effectiveness and suggesting that borrowers perceive them more as de facto amnesty schemes and as a means of obtaining a tax clearance certificate when needed. For instance, the drop-out rate for the most recent scheme—legislated in March 2015—is high and increasing, reaching 13 percent at end-October 2016, both in terms of nominal amount as well as number of debtors. Social security contribution schemes are even weaker, with drop-out rates reaching about 50 percent within a year.

  • Tax amnesties: The authorities have occasionally relied on tax amnesties to boost revenues in the short run. Such amnesties were adopted in 2010-11. More recently, the authorities have legislated a Voluntary Disclosure Initiative, which provides an installment arrangement for paying previously undeclared tax liabilities under reduced fines and interest and generous eligibility conditions (e.g., taxpayers currently under audit are eligible to participate in the scheme). The reduction in interest and soft treatment of detected noncompliance can be perceived as an amnesty for tax evaders. Moreover, the initiative also creates an expectation that similar (and more generous) schemes will continue to be provided in the future. These elements, coupled with lack of effective enforcement (as noted above), may further jeopardize tax compliance rather than detertax evasion. Indeed, best practice in effective tax administrations is to follow through with severe enforcement, including prosecution, if non-compliant tax behavior is detected, even when incentives for voluntary disclosure are offered.

C. Policy Recommendations

10. In view of the large and growing tax and SSC debt, durable solutions to prevent new tax and SSC debt accumulation and reduce the existing debt stock are urgently needed. Large tax and SSC debt overhang puts a drag on economic activity, impedes taxpayers’ capacity to pay current tax obligations, and contributes to a vicious circle of tax debt accumulation and meager growth. The scale of tax debt—affecting millions of taxpayers—also strains the tax administration, which has limited capacity to cope with the problem, while striving to modernize its institutions and operations and raise its credibility by ensuring efficient revenue collection and effective services to taxpayers. Bold measures are thus needed to cease the pattern of increasing tax and SSC debt and unlock economic and tax administration resources for more efficient uses. These should go hand in hand with fiscal policies that broaden tax bases and allow for lower tax rates.

11. First, the authorities should measure the full scale of the existing tax and SSC debt problem by assessing tax debtors’ financial situation. The economic downturn has made such an assessment particularly difficult, as the associated uncertainty hampers the ability to determine the future financial prospects of individual taxpayers. Notwithstanding these difficulties, the authorities need to develop a common methodology to classify debtors according to their financial viability, taking into account information on both public (i.e. tax and SSC) and private (i.e. bank, suppliers, etc.) debts, assets, and projected cash flow, taking into account the taxpayer’s compliance record and reason for accumulating arrears. Understanding debtors’ past behavior and intentions regarding their tax obligations could help distinguish potential strategic defaulters from tax debtors in temporary financial distress. A comprehensive look at their balance sheets and cash flow projections (with focus on key indicators, such as income to debt ratios, EBITDA, etc.) can also help distinguish between solvency and temporary liquidity problems (i.e. between non-viable and viable tax debtors). A methodology with objective criteria could also help address the officials’ fear of personal liability as they would be guided and protected by a formal framework in their decision to categorize tax debts as uncollectable or eligible for write-off.

12. Second, the authorities need to make use of all available tools to restructure existing tax debts in a targeted manner, with a view to preserving taxpayers’ viability. Across-the-board solutions—such as installment schemes—that have been tried and failed in the past, should be avoided, as they jeopardize payment culture and exacerbate debt accumulation. Instead, the authorities should develop targeted solutions in line with taxpayers’ financial viability and ability to pay. Specifically:

  • Enforcement actions: For strategic defaulters and unviable debtors, enforcement actions need to be intensified. In particular, the taxpayers that are able to pay their tax obligations in full but fail to do so should be identified and subject to enforcement measures, such as wage, income or asset seizure (including e-garnishment), putting a lien on assets, mortgage in favor of the tax administration, and auctions. Non-viable enterprises should be subjected to fast-track liquidation procedures. In this regard, the tax administration’s capacity to initiate bankruptcy and liquidation proceedings needs to be strengthened, including by increasing the number of staff with legal expertise and allowing appropriate decision-making and incentives (e.g. measurable targets, etc.) to initiate and complete the process.

  • Debt restructuring: For viable and potentially viable debtors, debt restructuring should be made available under certain conditions, and in accordance to the debtor’s capacity to pay, while minimizing the risk for moral hazard. In this regard, the completion of the ongoing efforts to develop and implement a voluntary out-of-court debt restructuring framework that applies to both bank debt and public claims can help accelerate debt restructuring without undergoing lengthy court procedures. The active participation of the public sector in this initiative is critical to ensure that public claims are addressed together with bank and other debts to adequately restore the debtor’s viability and foster reaching agreement on debt restructuring among all creditors.8 Even in cases where debtors have only public claims, debt restructuring solutions should still be sought under the out-of-court framework so as to ensure equal treatment of debtors. Tax debt restructuring under this framework should aim for optimizing collection from tax and SSC debts. This will likely entail selective write-offs of public claims (in particular with respect to fines and penalties, which are largely uncollectible) to restore debtors’ viability and recover the claims that taxpayers are able to pay. Adequate safeguards need to be put in place to prevent moral hazard, including information requirements regarding debtors’ financial situation, clear eligibility criteria, and strict consequences for breaching of the restructuring agreement.

13. Third, to prevent a further accumulation of tax debt, tax administration practices need to be aligned with modern approaches used in advanced economies:

  • Modernizing the legal framework: The framework for determining the (un-) collectability and cancellation of tax and SSC debt should be reviewed and streamlined, based on good practices in peer countries. 9 Delegation by the head of the revenue administration to lower level managers and units to determine debt collectability and debt cancellation could be based on debt size, while ensuring appropriate balance between operational efficiency and adequate safeguards from mismanagement or abuse. Safeguards could also be put in place through expost audits by internal or external public entities, including by expanding the coverage and tasks of the existing auditing entities. For instance, the internal audit department of the Ministry of Finance and the external Court of Audits could be tasked to monitor the implementation of debt restructuring, including debt cancellation. Adequate protection of officials against the fear of personal liability should be put in place; such a protection could include legal provisions that absolve tax officials of liability if they follow established tax administration guidelines on the criteria and procedures to categorize tax and SSC debt as uncollectable and eligible for write-off.

  • Modernizing collection and audit practices: The tax administration should modernize collection and audit practices to improve collection prospects and reduce the administrative burden. In particular, the new legal framework on fines (i.e. the tax procedure code) should also be applied to pre-2014 cases, and the legal framework for charging excessive fines on already indebted inactive companies should be reviewed and amended to ensure that fines act as a deterrent rather than as a contributor to tax debt accumulation. At the same time, the existing legal framework for risk-based audits and debt collection prioritization should be fully implemented by focusing tax administration efforts on new and large instead of old and small tax debts. Moreover, the legal framework should be revised to ease the burden of cases recommended by prosecutors to the tax administration. In this regard, the legal framework could be amended to allow the prosecutors to send some (non-priority or low-collection) cases to the tax administration as information only and without a binding requirement to audit.


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  • Brondolo, J., 2009, “Collecting Taxes During an Economic Crisis: Challenges and Policy OptionsIMF Staff Position Note, International Monetary Fund, Washington D.C.

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  • European Commission, 2016, Study and Reports on the VAT Gap in the EU-28 Member States: 2016 Final Report. European Commission, Brussels.

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  • OECD, 2015, Tax Administration 2015: Comparative Information on OECD and Other Advanced and Emerging Economies, OECD Publishing, Paris.

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Prepared by Ivohasina Razafimahefa (FAD).


A regression analysis based on a panel of European Union countries found a positive and significant relationship between VAT efficiency and the output gap (Brondolo, 2009). Furthermore, Sancak et al. (2010) find that VAT efficiency is hindered by changes in tax evasion during economic downturns.


The figures are related to the four main SSC funds.


Prior to 2014, fines and penalties were regulated by complex legislation under the Code of Books and Records, which lacked proportionality between the penalty size and the seriousness of the violation and, thereby, punished severely minor accounting errors.


In 2008, the share of debt written off in total debt inventory was around 1 percent in Greece compared to a Euro Area average of 22 percent (the country composition of the Euro Area group in these calculations differs between 2008 and 2013 due to data availability).


The Code of Public Revenue Collection has not yet been aligned with the amended Code of Civil Procedures, which streamlined the auction process for foreclosed real estate, allowing the minimum bidding price to be determined by market prices. See also Selected issues paper “Insolvency and Enforcement Issues in Greece.”


The total number of debtors in tax installment schemes is about 1.3 million (relative to a total number of tax debtors of about 4.4 million). However, since tax debtors may participate in several schemes simultaneously, the 1.3 million figure likely overestimates the number of individuals taking advantage of such schemes.


The existing framework does not cover public claims. As a result, banks have no incentive to restructure their debts, as they perceive the public sector to receive preferential treatment. Also see Selected issues paper “Insolvency and Enforcement Issues in Greece.”


“Treatment of Revenue Losses: Write-offs, Remissions, and Debt Reliefs,” Meeting of IOTA Area Group on Debt Management, Intra-European Organization of Tax Administrations.

Greece: Selected Issues
Author: International Monetary Fund. European Dept.