Why Greeks' swap of cash for cards could end a culture of tax evasion

When banks set limits on cash withdrawals last year, many Greeks adopted plastic payments for the first time – laying a paper trail that could bring light to Greece's 'shadow economy.'

Melanie Stetson Freeman/Staff
A woman makes a purchase in Elixir, a small shop selling herbs, on Friday in Athens. Greeks started using credit and debit cards during the financial crisis since capital controls were placed on the amount of cash allowed to be taken out of bank accounts. This shop took debit and credit cards before the crisis, but many shops are starting to take them for the first time – as required by the government – and many Greeks are using plastic for the first time.

Mary Plakaki likes to carry cash on her at all times. So when Greece limited the amount of withdrawals last summer to avoid financial catastrophe, she got her first debit card. Now she uses the card for whatever purchase she can, so that her stockpile of on-hand cash is always full.

Math student Tassos Tassoulas uses his debit card for the opposite reason. Ever since he was pickpocketed, he prefers his wallet as thin as possible. He now carries 30 euros max.

And for retired politician Ioannis Varvitsiotis, the new use of his debit card has less to do with cash flow and more to do with convenience, he says – and the fact that it’s simply the correct thing to do. Today he refuses to eat at a restaurant if it doesn’t accept electronic payment.

For all of the hardship that capital controls have placed on Greek society, there’s been one upside: across generations and class and for differing motivations, more Greeks are turning to plastic, in a nation where cash has always reigned. It’s what Aristides Hatzis, an associate professor of law and economics at the University of Athens, calls an eight-month “natural experiment in cards.”

And if plastic is often associated with spending beyond means, here it is seen as a new tool to empower Greece to counter what countless governments have failed to do in the past: tax evasion. It is debit, not credit, cards that are growing so quickly, and if the government is able to regulate and incentivize their use, they could create a powerful digital trail.

“You get the wheels in motion towards a situation where you have much more use of digital payments and much more transparency,” says Svetoslav Danchev, who heads the microeconomics analysis and policy department for the Foundation for Economic and Industrial Research (ΙΟΒΕ) in Athens. “And that’s how you lower the shadow economy.”

Shift in practice

Greece’s cash-loving culture is deeply rooted. Ninety percent of payments are made in cash, according to Visa Europe. In 2013, Greeks made the least number of digital  transactions per inhabitant in the European Union, according to the latest EU figures.

In the small food shops around Athens, only a fraction of storeowners accept electronic payment alternatives, and those who do aren’t happy about it.

Miltiadis Liassas, standing in front of the crates of eggs and tins of olive oil that he’s sold for 20 years, says he installed a card machine because the government has moved to mandate it. But he laments the high commissions. “It is just more money for the bank, not for the people,” he says. “It makes me feel like a slave.”

Maria Athanasiou, owner of a spice shop where mounds of oregano and Greek mountain tea are her best-sellers, says demand is higher now for the machine she installed three years ago. “But most people ask if there is an ATM before they use their debit card,” she says.

And for consumers, privacy rights are now a new concern. Ms. Plakaki, for example, considers her debit card a necessary evil. “I prefer cash. I don’t like them monitoring everything I’m buying,” she says.

Still, the financial situation forced a clear shift in practice. According to Visa Europe, the use of Visa cards in general increased by 80 percent in the second half of 2015, compared to the same period of 2014. For debit cards specifically, the increase was 265 percent. With capital controls still in place, limiting withdrawals to 420 euros a week for the foreseeable future, such tendencies are expected to grow, especially as more card terminals are installed.

According to the National Confederation of Hellenic Commerce (ESEE), the number of card terminals used in the Greek market continues to rise, with some 250,000 in use today, up from 157,000 in 2014. The group aims to add an additional 80,000 terminals by end of this year as they attempt to cover the entire market of 450,000 small enterprises. “I think this way we can compete with bigger and more organized enterprises,” says Vassilis Korkidis, the president of the ESEE. “What we are trying to do is take the benefits of big companies to small ones.”

Ending tax evasion

But it is the implications for tax evasion that the government is eyeing.

Like a preference for cash, a tendency to not pay taxes is part of a mentality that Mr. Hatzis traces back as far as the Ottoman Empire. “Greeks identified an authoritarian regime with taxation,” he says.

And today, with high levels of corruption and paltry social services, many Greeks – from merchants to lawyers, doctors, plumbers, and freelancers in general – have little incentive to bolster state coffers. They instead rely on their families, and their own pockets, for social welfare.

But the government is set to release a long-awaited bill on the expansion of electronic transactions, which will contain new rules on the mandatory use of electronic payments for both merchants and consumers alike.

The IOBE authored a report in the fall that argued that with electronic payments alone, the Greek state could potentially gather billions under various scenarios in additional revenue, as an electronic trail gives auditors the tool to track and make tax-evaders accountable. Studies show that the shadow economy in Greece represents up to 25 percent of the nation’s gross domestic product.

Old habits die hard

Still, if helping the government detect tax evasion might not be a top priority for many Greeks, Hatzis says the act of using cards “might make consumers more conscious that, when they don’t get a receipt, they pay a sales tax and they essentially donate this tax to the storeowner” instead of funding the government. “A lot of people don’t realize this.”

“Eliminating the human factor” is always a good thing, too, he says. And he expects that Greeks will simply learn to prefer new options as card use grows. “The ease and convenience of using these cards is going to teach a lesson.”

It already has for some. Thousands of first time card users were the elderly, who could only receive their pensions through ATM machines while banks remained shuttered in July. For Mr. Varvitsiotis, who was a Greek lawmaker for three decades and later was elected to the European Union Parliament, holding plastic was nothing new. But the use of debit was “forced upon him” at age 83, he says.

But his new habits have quickly taken hold. Just eight months later, if he goes to buy a book, a pair of shoes, or eat a meal out, if a card isn’t used, he says, he takes his business elsewhere. “This is a way to fight the underground,” he says.

Marina Rigou contributed reporting from Athens.

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