US embassy cable - 05ATHENS2053

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. 
RIES