Tax Leverage in Greece

Abstract

This study examines the implementation in Greece of a type of poll tax, namely the ‘trad ing duty’. In the past, the poll tax was chiefly a fixed tax charge applied to an individual, irrespective of the latter's income, property and consumer expenditure. Similarly, the ‘trading duty’ is a fixed tax levy which runs contrary to modern perceptions of society as a who le regard ing proportional and progressive taxation. Nowadays, a fair d istribution of the tax burden must be characterized by both horizontal and vertical tax equality. The principles of universality of taxation, taxation equality, justice and certainty and the princ ip le that no tax measures should be retroactive are embodied in the Greek Constitution.In Greece, the last three years have seen the approval of numerous tax laws, non-tax laws containing artic les on tax provis ions and Ministry of Finance decisions and decrees, while, in 2012, for the first time after many decades, all sectors of the economy are ‘in the red’. Despite the gloomy financ ial environment in Greece, in fiscal year 2012 a type of poll tax was imposed as a ‘trading duty’ for traders who filed Natural Person Income Tax (NPIT) returns.The implementation of the ‘trading duty’ allows for an extension from the terms ‘Operating Leverage’ (OL) and ‘Financial Leverage’ (FL) to the term ‘Tax Leverage’ (TL). Thus, when a percentage change in Earnings Before Tax (EBT) trans lates into growth of Earnings After Tax (EAT), then the phenomenon of the magnifying effect may be called Tax Leverage (TL) and it will be due to the possible constancy of the tax burden (e.g. trading duty, poll tax).In this study, through a detailed examp le, financ ial results (Degrees of Operating, Financial and Tax Leverage) determined at different levels of sales volume exhib it similar financial characteristics. Statistically they show linearity and a strong correlation, which create reasonable grounds for introducing a new termino logy in F inance. We consider it a given that OL is determined to a large extent by techno logy and can increase or decrease as a result of decisions relating to the investment budget. Furthermore, FL is positively related to the profitab ility of Assets, when EBIT/Assets>Borrowing Costs. Then, on the basis of the data and limitations of this study, TL is positively related to the profitab ility of Assets, when EBT/Assets>Tax Costs, while the Degree of Tax Leverage and the size of EAT are directly related accordingly.Lastly, a specific degree of combined leverage can be achieved through a different mix of OL, FL and TL, in order to offset any negative results that may arise from one of the three.