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Recently Greece passed a tax change for the Houses industry and a tax change for the Wood industry, both of them proposed and argued for by this writer.



This article has three purposes:

(1) Vanity, vanity, and more vanity! I put a lot of work into something to be viewed by less than 40 people. More seriously, some of the economic ideas presented may be useful to a larger audience, including my readers outside of Greece.



(2) A model for future Congress Members to structure their arguments about tax proposals. Each debate was initiated with a Foreword presenting all the background information and the outline of the argument, the Policy Suggestion itself, an analysis of Economic Impact (the effect on trade patterns and volume), an analysis of Fiscal Impact (the estimated change in tax revenue), and finally an Executive Summary bringing together the main points. While nobody has to follow such a structured approach to argument, it certainly did not hurt my proposals to do so.



(3) Presentation of the argument concerning these law proposals for Greece. Not just for Congress, which can refer to the Congress Archives, but also for the public. Why? It is not often that taxes change in Greece, and the public is justifiably curious. The most recent changes before these two were also when I was a Congress Member, but four months ago, when the Import Tax was raised for Food (from 60% to 99😵 and for Weapons (from 20% to 60😵.

Notwithstanding all these benefits of disclosure, I will add that these are imperfect documents. I know perhaps better than anyone where I could have gone back and added additional documentation or arguments.



Taxes: Houses

The argument is, roughly, of this shape:

(1) If Greece is using a tax structure for the domestic Houses market that is punitive to business compared to the international Houses market, then the Houses industry in Greece suffers due to taxes.
(2) If the Houses industry suffers due to taxes, then it is in the interest of Greece to correct the taxes.
(3) Greece is using a tax structure for the domestic Houses market that is punitive to business compared to the international Houses market.
(4) Therefore, the Houses industry does suffer due to taxes.
(5) Therefore, It is in the interest of Greece to correct the taxes.

(1) Why Look at the International Situation of Taxes for Houses?

Before giving the analysis, it must be made clear why the "Global Situation" in terms of taxation on Houses is relevant to us. Certainly, we have the ability to set our own taxes independently. However, the tax rates around the world affect Greek businesses, and this is very true in the case of Houses. Why?

There is not one market for Houses in Greece but three. The first one, the one over which the Congress has the ability to tax and therefore Congress has an interest in it being competitive with the other two, is the domestic market for Houses purchased in GRD. This market includes those Houses that are legitimately imported to Greece from foreign companies.

The second one is every other domestic market in the eRepublik world. You might object that these are not markets in Greece. However, since a House is typically a large one-off purchase, a very large portion of the consumer base is savvy enough to consider getting their House from a foreign market, especially if the savings can be measured in multiple GOLD (whereas two Moving Tickets cost, more or less, half a GOLD or so).

The third one is even more cutthroat, but since it differs so radically from the first two it is not really possible to try to compete with it on price. That market is the "black market" of used Houses, a House being useless to its owner if he or she upgrades or sometimes being a source of quick cash by liquidation. Since the prices are not visible in the marketplace, the transaction is risky, and the consumers who make this kind of transaction are unlikely to change their purchasing habits, the most relevant competitor to the Greek domestic market is the second one (in the previous paragraph).

Other countries set the tax policies on their domestic markets, by establishing Income Tax (usually 10😵, VAT, and Import Tax. By creating a favorable tax situation, a country can encourage their Houses industry to grow. By imposing harsh taxes, the opposite may occur: the Houses industry in that country may be unable to compete as easily with other domestic markets and the black market.

(2) What does Greece gain by giving its Houses industry more "room to breathe" competitively?

The most obvious counter-argument may be that a harsh level of taxes in the Houses industry is a good thing for the very reason that Greece doesn't, perhaps, want a healthy Houses sector. I argue that this is not true; that Greece benefits from a healthy Houses sector. The main reason is the "Construction" skill. With almost any other Industry, it is easy enough to tell workers who have developed that skill to change jobs. Greece can tell Grain farmers, Wood loggers, and Diamond miners to switch over to Iron, and they will have lost no progress in their character. Likewise with Weapons, Moving Tickets, Gifts, or Food. However, the Construction industry has only one consumer goo😛 Houses. Even though the skill of Construction is the least common in Greece, there will always be people in Greece (a nation of thousands) who want to work in Construction. Their talents should be channeled into the Houses industry. Moreover, in doing so, we are able to produce Houses domestically instead of transferring the wealth to other countries for all our Houses purchases.

For this reason, it is important for Greece to look after the condition of the Houses industry. One way is by review of the taxes.

(3) An Analysis of the Global Situation for Houses Tax

I reviewed the Houses tax policy for practically every country in eRepublik. However, since half of these countries do not have an economy of any appreciable size, I then considered only the top half of twenty-five countries by total experience points, including Greece in that at the #10 spot.

The following statistics could be discerne😛

1% VAT in 12 Countries
2% VAT in 2 Countries
3% VAT in 1 Country
4% VAT in 1 Country
5% VAT in 7 Countries
7% VAT in 1 Country
8% VAT in 1 Country [Greece]
10% VAT in 1 Country

The only country with a higher VAT on Houses, at 10%, is Turkey.

Then, looking at the comparison of the Houses VAT to every other of the four consumer taxes (Manufacture products), the following was observe😛

9 Countries had a Houses VAT that was _lower_ than _every other VAT_
11 Countries had a Houses VAT that was _equal to the lowest VAT_
5 Countries had a Houses VAT that was higher than any one other VAT

Greece was among those four countries... where the Houses VAT is the highest of all.

Now, looking at the Import tax situation, Greece is really in a good moderate position at present. Here are those statistics:

(A) 2% VAT+Import Tax in 2 Countries (USA and China)
(😎 10%-17% VAT+Import Tax in 7 Countries (including Greece)
(C) 21%-31% VAT+Import Tax in 3 Countries
(D) 41%-51% VAT+Import Tax in 4 Countries
(E) 100%+ VAT+Import Tax in 9 Countries

While it is clear that (E) is a death knell to any importers, it becomes evident that (C) or (D) are also highly uncompetitive because countries looking to export have the selection of 9 countries where the total tax is 17% or less, a potentially bearable surcharge to reach a more lucrative market. On the other hand, (A) is far too permissive, capturing almost no revenue from the imports. This makes remaining in (😎 the most attractive option.

(4) How Does the Houses Industry Suffer in Greece?

The basic reason that the Houses industry suffers, which is also the basic explanation for why 4 out 5 countries make it either their lowest VAT or tie it for lowest (and 22 out of 25 set it at 5% or less) is simply this: Houses are expensive! Why does that matter? Consumers feel the benefit of a lower tax much more directly and psychologically in this large purchase in which they may be aware of the rough black market value, even if they don't buy off the black market. And businesses that are in countries with a high VAT either pay the price of getting less for their Houses even though they sell at the same amount as a company in a country with a lower tax rate... or they pay the price of getting more but not being able to sell them consistently. Either one can be a reason for the company to fold. Add to this the fact that wages in Greece are high all around thus making it hard for the domestic Houses company to compete in the first place, and that the combined VAT+Import Tax on Houses in Greece is competitive globally, and you've got a recipe for malaise in the domestic Houses industry.

(5) How Is It in the Interest of Greece to Correct the Taxes?

The effect of lowering the VAT may seem to be to reduce the amount of money that the Greek treasury receives from Houses sales. In the short term, it probably will. However, in the long term, it will increase the amount of Houses sold in Greece by the existing Houses companies and also increase their profitability. This will allow these Houses companies to upgrade to higher Quality (all-important in the Houses business) as well as allow more companies to move in to fill out the entry level of Houses. Or, perhaps, just more of the existing Houses companies move out of dormancy and become active, and Greece becomes a more attractive place for the EDEN Construction worker looking over his or her options. In any event, the lower VAT will result in more sales and thus more revenue to tax, providing a counterbalance to the immediate loss in taxes with the net gain of a healthier domestic Houses industry.

Should Greece then also move to make a punitive Import tarrif that prevents competition of foreign companies on the Greek domestic marketplace? I argue that no, Greece should not. The reason is that Greek business managers in the Houses industry will most likely be unaware of the invisible influence of the second (foreign marketplaces) and third (black) markets available to players if they are not seeing any price pressure in the domestic Greek marketplace itself from foreign companies. They will, unwittingly, kill their own sales if not given some degree of check. Moreover, by setting a somewhat high but not impossible rate of Import Tax, this can generate more money for the treasury and help offset the loss of a reduced VAT (perhaps even making it a gain when combined with the increased number of Houses sales from domestic companies).

Policy Suggestion

Currently the taxes for Houses are set as follows:

Old Income Tax: 10%
Old Import Tax: 8%
Old VAT: 8%

The proposal that I suggest is this:

New Income Tax: 10%
New Import Tax: 12%
New VAT: 4%

This creates a VAT slightly less than that of the other consumer industries (the same 4% VAT used by Romania) and a combined VAT+Income Tax of 16%, which creates taxes for legitimate importers to Greece that are four times the amount as for domestic Houses companies but still in the &quot😢😎" category range and within the 9 most favorable countries (16% being the same combined rate as before).

Economic Impact

The Income Tax does not change. Of course, more Construction workers may be attracted to Greece to work here if the sector improves, so there may be more workers being taxed at the 10% rate in Greece; also, more workers may switch back to Construction, which may be their highest skill.

The Import Tax increases from 8% to 12%, but the combined rate of Import Tax+VAT remains 16% due to lowered VAT. This means that existing Houses importers are not punished for choosing to do business with Greece and that they can help provide a guide to Houses companies within Greece against too much overpricing. Keep in mind that 12% on a 1000 GRD House, for example, is still 120 GRD more.

The VAT decreases from 8% to 4%. This cuts the tax in half but not to the low-low rate of 1% that many countries put on this most expensive of items in order to be competitive. This means that, for example, instead of an 80 GRD tax on a 1000 GRD House, a business need deal with only a 40 GRD tax. Being able to offer the product for over a GOLD cheaper goes a long way to keeping House buyers in Greece interested in the domestic House company.

The effect is to foster the growth of the domestic Houses industry.

Fiscal Impact

Before becoming speculative here, it may be interesting to be retrospective. There are 24 Houses companies in Greece that have ever made a sale. Their lifetime cumulative sales amount to 85,278 GRD. At the 8% tax rate, that's 78961 in company receipts and 6316 GRD paid in taxes. Cutting the VAT in half would mean a difference of about 3000 GRD historically in taxes from VAT if it were retroactive over the past six or more months during which these companies operated... if these companies made no more sales than they did at present and sold their Houses for no more GRD.

How much more revenue from Houses sales would be necessary for a lower VAT to become a fiscally neutral decision? A quick reaction might say "twice as much," but that ignores the benefit of Income Tax on those working in Houses companies. If more workers immigrate to work in Construction in Greece, or if workers switch to Construction when the job offers improve domestically, there would be wages paid in the Houses industry that are taxed without taking away from the total wages of the nation. (One must consider that a baby choosing Construction could have easily chosen Land or Manufacture.)

Let's make some rough guesstimates because we have nothing better. Let's say that, when the Houses industry grows under a lower VAT, half of that growth is from Greek babies or others being employed who would work just as well in any other industry, while the other half of that growth is from immigrants or others who already have Construction as a developed skill. It's the second group that increases the Income Tax revenue of Greece. Further, based on my own experience with a Houses company, I can say that wages to the Construction workers make up about 50% to 60% of the final price of a House. Using the 60% figure for well-paid Greece and the 50% figure for those who immigrate or have skill in Construction, that means that growth in Housing sales (by 😵 results in 30% growth (of 😵 in taxable income at a 10% rate. In short, that increase in revenue from Houses sales brings in about 3% in additional Income Taxes.

The equation for neutral fiscal impact is this, then: If X is growth in houses sales by a factor (such as 1.05 for 5😵, then 0.08 = 0.04 * X + 0.03 * (X - 1). That is, the current VAT revenue, against sales that are set at "1", must equal the future VAT revenue plus the increase in Income Tax revenue, for neutral fiscal impact. If you solve that equation, you get X = 1.57. That is, for this measure to have a neutral fiscal impact, the Houses industry must grow by about 57% relative to how much sales it makes as-is.

Based on the fact that 8% VAT is such an outlier in the global marketplace and that Houses are highly sensitive to global market prices, this outcome is certainly within reasonable expectations. Even if the growth is not entirely that dramatic, a growth in the domestic Houses industry serves Greece in other ways. That GRD is given to a company in Greece instead of being paid in GOLD to a foreign monetary market (the second competing market) or a foreign company (the third competing market). Most often the company owner of a Houses company in Greece is a Greek. Moreover, the employees in Greece will invest some of their earnings into the Greek marketplace, but workers in no other nation can really be expected to do so. Thus, while it may take 57% growth of the Houses industry for immediate fiscal neutrality, the "trickle down" benefits make it reasonable to make the change even if somewhat short of that target.

The worst-case scenario is that the Houses industry sees no growth and the lowered VAT reduces tax income on Houses sales by roughly 600 GRD per month (4% less VAT on approximately 15,000 GRD monthly sales, which would be a cost of 3 GOLD to print or a present market value of 18 GOLD, depending on how you wish to look at it).

Executive Summary

The justification for the proposed law is to foster the growth of the Houses industry. Over the course of a few months, the effect in stimulating growth of the domestic Houses industry could be significant, perhaps even as much as the roughly 60% more gross sales in Houses that would be needed to achieve a neutral fiscal impact. At the worst, it could come at a cost of 600 GRD per month in lost revenue if there is absolutely no growth in the Houses industry, but some growth is expected. The real benefits are those of keeping the money spent on Houses within Greece by "giving the industry room to breathe" (and grow!) and in creating Construction jobs for those who are already skilled in Construction.



Taxes: Wood

Foreword - An Analysis of Wood and Construction Industries in Greece

While there are multiple inactive Wood companies, there is only one active Wood company in Greece (company 207023). It has three employees of skill 3, skill 1, and skill 1. This situation is unlikely to change much unless Greece acquires High Wood or loses High Iron, the former being unlikely at this point and the latter being highly undesirable as well as unlikely.

The more noteworthy fact is that Construction companies, particularly Housing, have expanded since the tax laws concerning Wood were last revised. Not only many of them, but there are a few of them that appear to be buying Wood for GRD, as detected from reviewing the donation list of every active Housing company (instead of "importing"/"blackporting " it by donation). These companies include:

Hellenic Housing Q1 (http://www.erepublik.com/en/company/hellenic-housing-q1-188813)
Made From Greeks Houses MFGH (http://www.erepublik.com/en/company/made-from-greeks-houses-mfgh-202043)

And possibly also (to an extent if not entirely): Death Star Q5 Suites (http://www.erepublik.com/en/company/death-star-q5-suites-203086)

It is also a fact of business that owners occasionally are lazy about doing donations and buy small amounts of Wood to prevent going completely out until they can do a large batch.

In short, there are people buying Wood off the Greek marketplace. There is even a very small amount of domestically-produced Wood. However, all of this activity is completely untaxed.

For the sake of argument, let us simply use the first two companies mentioned to obtain a conservative estimate of the amount of Wood purchased in GRD daily. Using the last time each employee worked, that amounts to about 231 production in "Hellenic Housing Q1" and 142 in "Made From Greeks Houses MFGH", total of 373 per day. In a period of 30 days, that's 11,196 Wood. If each Wood is valued at about 0.27 GRD then that is 3022 GRD in sales monthly, almost all of it from (legitimate, taxable) imports.

Policy Suggestion

Currently the taxes for Wood are set as follows:

Old Income Tax: 0%
Old Import Tax: 0%

The proposal that I suggest is this:

New Income Tax: 10%
New Import Tax: 1%

Economic Impact

The increase in Income tax is not prohibitive; it merely brings Wood in line with other industries in Greece and allows it to succeed or fail on its own merits. (Another idea -would- be to make the Income tax prohibitive, but business owners generally seem to be clued in enough to the importance of Iron anyway, and if they aren't, they are even less likely to notice a high tax.)

The increase in Import tax is not prohibitive. It wouldn't even register as a visible price increase for offers of Wood Q1, Q2, and Q3, which are generally 0.99 GRD or less, and it would only represent a visible increase of 0.01 GRD for offers of Q4 Wood. The effect is negligible.

Fiscal Impact

Given the small size of the Wood industry in Greece, it is estimated that about 10 GRD in wages is paid daily in the one active company. The increase of revenue from Income tax, based only on this current figure, would be then 10% of 300 GRD monthly, or a revenue of 30 GRD monthly from that Income tax. But, since that company may fold, even that is not a sure thing.

The increase in Import tax is a more certain increase in income, albeit not necessarily phenomenal. It will, however, have no negative impact and will most likely only grow as the Greek economy and Housing industry grows. The 1% tax on roughly 3000 GRD in (legitimately) imported Wood sales monthly would come out to a revenue of 30 GRD per month.

Executive Summary

The proposed law has no foreseen negative economic impact, then, and will increase tax revenue by 30 GRD per month or more (how much more being dependent on various factors).



Other Opinions

While, ultimately, both proposals passed into law in eRepublik after garnering a majority of the votes in the Congress forum, like most political decisions it was not unanimous.

The vote concerning Houses taxes was split between a vote for the original proposal of 4% VAT and 12% Import Tax and another proposal of 4% VAT and 10% Import Tax. What's important to understand, either way, is how imports are taxe😛 they pay both the VAT and the Import Tax for a combined rate, in this case a combined rate of either 16% (which it was already) or 14% (a reduction of 2😵. The former received more votes in the Congress forum than the latter, so it was the proposal made in eRepublik.

The vote concerning Wood taxes was presented as a yes-or-no vote. While at least two congress members wanted to see a lower Income Tax than 10% (such as 4% or 8😵, other congress members wanted to hold off on changing Wood taxes altogether until data came in concerning the effect of a Houses tax change. Due to the conflicting concerns of the dissent, I presented the option as yes or no in the Congress forum. It achieved a majority vote of yes in the forum and then in eRepublik, albeit at least one "yes" voter would have preferred an 8% Income Tax rate.



How Much Wood Can a Congress Tax if a Greece Would Chop No Wood?

Most of the negative reaction to the Wood taxes proposal was spawned, I believe, from the Income Tax portion of it. It is here that I allowed my general approach to Income Tax to show (apparently shared by many legislatures based on reviewing their tax laws): Income Tax incentives do not work. The average worker does not appreciate the difference in earning potential that he or she could make by accepting a lower wage with a lower tax rate to make up for it. The end result is that any variation in Income Tax is simply potential revenue left on the table. It does not do anybody any favors to give tax breaks that are, psychologically, though not literally, "at random."

(I will add a necessary caveat: punitive income tax does work, because the worker realizes, at least after taking the job, that he or she is not getting, say, 50% or more of the paycheck. This is the difference between a highly punitive rate and a slightly incentivizing one.)

The other negative reaction to a change in Wood's Income Tax was that it was a waste of a proposal since nobody should operate a Wood company in Greece. (Notwithstanding that multiple Wood companies exist and have been active historically and in the present, as it is not really necessary to my argument...) The Income Tax was not my focus in the change, although I did analyze its effects along with the Import Tax change. The Income Tax change, in my view, saves a proposal in case we ever do develop a Wood industry of any size whatsoever.

It was the Import Tax change that was the salient change. Wood was the only one of five materials to be untaxed on import, and was left at 0% Import Tax unlike its brothers Grain, Oil, and Diamonds at 1%. This is another case of "potential revenue left on the table" for next to no reason at all. The 1% Import Tax clearly has not inhibited importers of Grain, Oil, or Diamonds from the Greek marketplace. (I myself am an importer of Oil to Greece for the past five months, so I can say I understand it firsthand.) The price change is "invisible" under 1 GRD and is the amount of 0.01 GRD visible change for listings at 1.00 GRD to 1.99 GRD. Since most sales of Q3 or lower raw materials are under the 1 GRD mark and because most sales of raw materials are Q3 or lower, the majority of foreign importers compete on even footing with domestic sellers; otherwise (e.g. for Q4 sellers), they have a visible increase of 0.01 GRD in their unit price.

If the estimated figure of 3000 GRD worth of legitimately imported Wood is accurate, then the effect would be to tax these transactions at an amount of 30 GRD monthly, an amount that would increase if volume increased. While there is not literally absolute zero economic impact, as these companies between the buyers and the sellers would be out 30 GRD monthly in their sales of over 10,000 Wood, the effect is considered negligible in my analysis to the volume and prices that businesses set. The "invisibility" of the tax in most transactions is no small part of that.



I Bet You Feel Like This Kitty By Now!

Either that, or you just skimmed for the pictures like everybody else. I don't blame you. 🙂

The executive executive summary is that the domestic Houses companies were given a tax break, Wood importers had their Import Tax brought into line with other raw materials, and the domestic Wood company (to the extent such a chimera exists) had its Income Tax brought into line with other industries. And there was much rejoicing.