GREECE CRACKS DOWN ON HEATING OIL FRAUD

UNCLAS ATHENS 002053

SIPDIS

E.O. 12958: N/A
TAGS: ECON ENRG GR OIL
SUBJECT: GREECE CRACKS DOWN ON HEATING OIL FRAUD


1. (U) Summary: The GoG announced on July 29th the
implementation of a two-phase plan designed to crack down on
the burgeoning illegal trade of heating oil for use in
commercial diesel vehicles. Skyrocketing oil prices, and
much lower taxation on heating oil compared to diesel fuel,
have created a gray market for heating oil with commercial
trucking firms using the heating oil in place of diesel fuel.
This trade, in which an estimated 40 percent of commercial
vehicles participate, costs the GoG an estimated 1.5-3
billion euros annually in lost tax revenues. This loss comes
at a time when the GoG needs every bit of revenue to bring
down its high public deficit and staggering debt. In the
first phase of the GoG,s plan, tax authorities will
crosscheck invoices submitted by both the distributors and
consumers of heating oil. In the event of discrepancies, the
theory goes, they will be able to track down the malfeasants.
In the second phase, heating oil transactions will be
recorded automatically by smart cards, which will report the
transactions directly to a computerized system monitored by
the tax authorities. Ultimately, if successful, total GoG
revenues could rise by as much as four percent annually as
the result of proper enforcement. End Summary.


2. (U) The GoG has announced a two-phase plan that allows
for the monitoring of heating fuel transactions through an
invoice cross-checking system designed to discourage the
illegal use of heating oil in diesel-powered commercial
vehicles. The price of heating oil is significantly lower
than the price of diesel, due to its substantially lower tax
rate and, as a result, up to 40 percent of commercial
vehicles illegally use the cheaper heating fuel in their
diesel engines. The GoG estimates that this tax evasion has
cost the treasury between 1.5 and 3 billion euros in lost
revenues, which if collected would boost total GoG tax
revenues by approximately 4 percent. The problem has been
steadily rising with the increased cost of crude oil, and
from February 2003 to June 2005 the Development Ministry
fined 82 petrol stations a total of 4.5 million euros for
illicitly trading fuel. Nevertheless, more needs to be done
and the GoG has marked this trade as the first target in its
campaign against tax evasion and corruption.


3. (U) The first stage of the new tracking plan requires
both distributors and consumers of heating oil to submit
signed invoices to the tax authorities that will contain the
date and amount of the transaction. Any heating oil
transactions where the distributor,s invoice and the
consumer,s invoice do not match will be flagged for
investigation for possible tax evasion. In the second phase,
to begin in May 2006, all consumers of heating fuel will be
issued a &smart card8, containing the end-users name,
address, house size, and ID card and tax registration
numbers. For every heating oil sale, distributors would
swipe the Smart Card into portable terminals, which will
transmit the transaction data to the relevant GoG
authorities. This will allow for faster identification of
phony transactions, as well as allowing the tax authorities
to determine if heating oil purchases appear to be in line
with heating needs, based on house size.


4. (U) The price of petroleum has reached record highs in
Greece, causing consumption to fall in the first quarter of
2005, year on year. Greece is one of the most oil dependent
countries in the EU, spending 3.5 percent of GDP on imported
oil, compared to an EU average of 1.5 percent. Nevertheless,
both the costs of heating oil and petrol in Greece are the
second-cheapest in the eurozone, even after the April
introduction of a one percent Value Added Tax (VAT) increase
and an increase in the special consumption tax on gasoline
and diesel.


5. (U) Comment: This plan completely overturns a previous
GoG suggestion to eliminate the incentive for illegal trade
by raising the tax rate on heating oil to that of diesel
fuel. This tax increase would have doubled the cost of
heating oil to the end user, which sparked considerable
criticism from opposition parties and civic interests. The
Government then floated two separate rebate plans designed to
harmonize the diesel/heating oil tax rate but provide relief
for consumers. However both were roundly criticized as being
unworkable and/or unfair. The new system appears to add an
additional, even bureaucratic, layer of control.


6. (U) Tax evasion of all types remains a significant
problem in Greece, with some experts estimating that as much
as 40 percent of the nation's GDP is unreported. Increased
monitoring of heating fuel transactions is a step in the
right direction as taxes on petroleum products provide nearly
nine percent of total tax revenues. Progress in defeating
tax evasion is becoming even more necessary as the GoG is
counting on a 11 percent increase in revenues to meet its
Stability and Growth Pact deficit obligations, but mid-year
revenue has increased by less than six percent. End Comment.
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