Greece: Tax Incentives Benefit National Economy

Panayis Konstantinidis (left) with Kostis HatzidakisGreece’s solar water heater manufacturers have proved to be highly resilient at a time when the country is in economic crisis. The collector manufacturers were able to increase both domestic (+19 %) and export (+16 %) sales in 2014, according to the Greek Solar Industry Association, EBHE. The industry provides a high level of vertical integration and exports 50 % of its annual production volume. EBHE promotes a number of measures to keep business growing for its members. At the beginning of the year, the association and industry sponsors commissioned the Greek Foundation for Economic & Industrial Research, IOBE, to carry out a survey on the economic impact of a domestic tax reduction scheme. The survey results are now available and EBHE’s President, Panayis Konstantinidis, has already been in several meetings with ministry officials and members of parliament. The photo shows Konstantinidis (left) with Kostis Hatzidakis, Member of Parliament and former Minister of Development, during a discussion in September 2015. 
Photo: EBHE
 
“Over the last months, we spoke with several government and parliamentary officials to emphasise the fact that a tax reduction strategy strengthening the Greek solar thermal industry would have several advantages for the national economy,” Konstantinidis explains EBHE’s strategy. “It will increase the net tax flow of the government, create jobs and help reach the green targets of climate protection.”
 
To add some hard evidence, EBHE commissioned IOBE to conduct the survey because the company is “a well-known consultancy that ministries also take seriously,” explains the EBHE president. The study has been available since March 2015 and analyses different scenarios with tax-related incentives promoting residential solar hot water systems: 
  1. Implementing a tax credit which allows investors to deduct a certain share of the investment costs for a solar thermal system (between 10 and 50 %) on their upcoming tax declaration. Here, there are two alternatives under discussion: A tax reduction for all newly installed systems (A) and a tax reduction which requires certain criteria to be met, i.e., first-time installations, solar for let flats, income level (B). Such a tax credit had been in place in Greece since 2006 and was very popular among end consumers. 
  2. Reducing end-consumer VAT for solar water heaters from 23 to 13 % (C). This would bring the VAT rate in line with the one for gas and electricity, which are clear competitors of solar water heater technology. Such a reduction would have two advantages: reducing solar water heater end costumer prices and increasing the share of invoiced solar water heater sales. At this time, the association assumes that 35 % of the products are sold without a receipt. 
The survey provides a detailed analysis of the economic impact of each scenario, listing eight economic parameters, such as new jobs, emissions avoided and net tax credit per MWh. The following table shows that scenario B and C create positive net flow, plus a number of new jobs. These figures are door-openers for Greek politicians. 
 

 

Scenario A:
30 % tax credit
for all new systems
(Table 5.1)

Scenario B:
30 % tax credit
under certain
conditions
(Table 5.2)

Scenario C:
VAT reduced
to 13 %
(Table 5.3)

Increase in
the number
of installed,
residential solar
water heaters
per year

13,500 to 40,500

13,500 to 40,500

3,680 to 11,041

Tax credit costs

-29 to -37 million EUR

-3.8 to -11.5 million EUR

-1.0 to -0.6 million EUR

Government
revenues through
VAT if systems
are sold with
receipt

+11.9 to +24.7 million EUR

+5.9 to +17.7 million EUR

+1.6 to +4.7 million EUR

Net money flow
for government
(difference
between tax
reduction costs
and tax benefits
by additional
investment)

-17.6 to -12.4 million EUR

+2.0 to +6.1 million EUR

+0.6 to +4.1 million EUR

New jobs

379 to 1,136

379 to 1,136

103 to 310

Results of the different IOBE study scenarios. The study is not publicly available. 
Source: Greek Foundation for Economic & Industrial Research (IOBE)
 
The big difference between scenario A and B is the number of systems sold with a receipt. In scenario B, fewer consumers will benefit from the tax credits, so tax credit costs are down significantly. But a good number of consumers will not be interested in any receipt, which means tax income will go down as well. Overall, however, scenario B comes out ahead by showing a small amount of positive net money flow for the government, whereas scenario A results in negative money flow.
 
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