Academic journal article European Research Studies

Stress Testing the Effect of Income Tax Scale on a Full Time Agricultural Income in Greece after the New Tax Legislation

Academic journal article European Research Studies

Stress Testing the Effect of Income Tax Scale on a Full Time Agricultural Income in Greece after the New Tax Legislation

Article excerpt

1. Introduction

Given the new tax legislation of 2016 according to which the farm income has the same tax treatment with the rest of the professionals we decided to construct a model to check the effect of stressing the main tax parameters by an average of +10%. We started by constructing a theoretical model according to which the gross revenue of the farmer is 200.000 euros and there is a gross profit margin of 30% derived from a cost index of 70% on the revenue. Given the new legislated taxscale we stressed the cut off limits of the scales; the tax coefficients of the scale and the effective tax rate derived from the net income after tax to revenues, in order to identify which parameters, have the most significant influence on the tax burden of farmers' income.

2. Literature review

Bourdaras (2006) and Tamiolakis (2013) have researched extensively the past, the present and the future of the Common Agricultural Policy (CAP) and its implications to the income of the Greek farmer. Spanellis (2004) focus more on the export aspects of Greek agricultural products. Many other studies including Gorton et al. (2009), Matthews (2011), Swinnen and Johan (2009) and Zahrnt (2009) have focused on CAP and its past present and future implications to farmers' income. In general, as seen in various EU commission reports, CAP has influenced decisively the total income of European farmers. Thalassinos and Dafnos (2015) have discusssed the structural changes in EMU for a more effective Optimum Currence Area (OCA) and Rovolis et al. (2014) the effects of capital structure in real estate companies due to EU legislation.

3. Latest Tax Legislation

As described in Agrenda 2016 the first major change is related to the definition of a full-time farmer meaning farming as the main occupation of an individual male or female. According to the current legislation farmers are those who have at least 50% of their income deriving from an agricultural activity (article 2 par. 1 of Law 3874/2016 as amended by article 65 of Law 4389/2016) and was voted in May 2016 by the Greek Parliament.

More specifically, Article 65 provides:

1. Paragraph 1 of Article 2 of Law 3874/2010 (A 151), as in force, is amended as follows:

(a) Subparagraph (a) of paragraph 1 is replaced by the following: A professional farmer is an adult person who has the right to be registered in the Register of Farmers by fulfilling the following conditions cumulatively:

a) He is a farmer.

b) He or she is professionally engaged in farming on his holding at least 30% of his total annual working time.

c) At least 50% of his / her total annual income (from 35% in force) comes from farming.

d) He is insured himself and his farm, where appropriate, in accordance with the applicable legislation.

e) keep accounts in accordance with the legislation in force.

The second major change concerns the income tax scale from agricultural activity as illustrated in Table 1. Pursuant to the new law, Article 112 of Law 4387/2016 (replacing paragraph 3 of Article 29 of Law 4172/2013), profits from agricultural business are now taxed on the scale of paragraph 1 of Article 15 independently without these incomes being aggregated with any income from wages, pensions and business activity.

The third major change concerns the reduction of income tax. In the multi-bill voted by the Parliament on 22 May, a clarification is introduced on the case where income is earned from an individual business subject to OGA insurance, together with income from agricultural activity. In this case the abovementioned tax reduction is calculated, but only on the income earned from the agricultural activity. At the same time, it is stated that if income from paid employment or pensions is earned together with the income of the previous paragraph, the tax reduction will be that which corresponds to the part of the income derived from paid employment and pensions as well as agricultural activity. …

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