Pay With Cash, Face a Big Fine: How the Greeks Are Promoting a Cashless Economy

At Marios Fotiadis’ bookshop in downtown Athens, he sees a certain kind of customer over and over again. They walk in, he says, “pull out cash and ask for a discount. They want to avoid the plastic. The cost is too high.”

Greece’s new government is going to war against this kind of shopper. The country wants to enter into the era of cashless commerce, a move it believes will cut down on tax evasion and bring revenues into the coffers of one of the world’s most indebted economies.

Under legislation pushed through parliament recently by Greece’s new conservative government, the tax authorities will slap hefty fines on those who make payments solely in cash.

A fair number of Greeks are blasting the new rules. Most see it as another round of tax hikes just as the economy begins to pick up again. (Following years of austerity programs implemented during the country’s ten-year economic crisis, the economy is finally on surer footing and is expected to grow at 2.8% next year, more than twice as fast as the EU average). Others say the move to digital payments will mean the government knows too much about them.

Fotiadis believes the new law is doomed to fail. He said that if the government were really serious about making Greece a cashless economy, it would pressure banks to make digital payments easier and cheaper on everyday Greeks. His business, set up in 2013, has been expanding for the last three years as the economy has recovered, and he has taken on extra staff. But growth in electronic payments remains relatively small, he says.

Carrot or stick

Around the world, governments, businesses and Big Finance have been promoting cashless transactions as online commerce and mobile banking takes off. To support the transition, countries often prefer to dangle the carrot—using tax incentives to boost online transactions, mainly. In South Korea, for example, taxpayers were offered rebates for going digital, in a program that was eventually adopted elsewhere.

Greece’s decision to go with the stick—imposing a fine on those taxpayers snubbing digital payments—is more unusual.

Beginning in 2020, taxpayers are now required to provide evidence as to where and how they spent 30 percent of their annual income. Electronic receipts on an array of expenses, ranging from shoes to school fees, must be submitted to authorities as proof that income has been legitimately spent throughout the year.

If the receipts submitted do not reach the 30 percent mark, then a 22 percent penalty is imposed on the amount that falls short of the minimum threshold.

Greek government officials estimate that this will push about 2 billion euros from the shadow economy onto the tax office’s radar, allowing the state to take a slice of it. Greece has long struggled to get a grip on its shadow economy, one of the largest in Europe, but progress is being made.

According to the International Monetary Fund, the estimated value of undeclared goods and services amounted to 26.4 percent of the country’s gross domestic product in 2015, versus 28.4 percent in 2012. In southern and central Europe, countries with large shadow economies normally tackle evasion through employment laws, such as, requiring businesses to pay employee wages electronically. Drafting a law on digital payments would put Greece in unique footing among its regional peers.

Pressure from creditors

Greece is also under considerable pressure from its many international creditors to hit a series of fiscal goals, including achieving tough budget surpluses as condition for receiving billions in bailout funding. Athens is hoping to soon renegotiate these terms and get a better deal now that the economy is on the mend and the country has started funding itself by issuing bonds.

Finance Minister Christos Staikouras argues that the digital payments fines will help spread the tax burden among a larger number of people. “Electronic transactions worldwide are a crucial element in broadening the tax base and reducing tax evasion,” the minister told parliament. Those aged over 70 are off the hook, as are the unemployed.

Demands on taxpayers to justify their spending habits is not something new to Greeks.

The previous left-wing government initially introduced these fines in 2017, in a move that went almost unnoticed (if not outright ignored). The demand for online proof of payment stood at 10 to 20 percent of income, versus the new 30 percent minimum. Criteria have been further toughened by a decision to broaden the type of income that must be partly matched with e-payments to include revenues from real estate assets—a move that could hit the many AirBnB entrepreneurs in Athens and ordinary landlords alike.

This has infuriated Greek property owners group POMIDA. They say that it is unfair as property owners don’t often get a lot of electronic receipts. Additionally, landlords point out that once they pay their taxes and bank loan installments—expenses that do not qualify for the basket of online invoices—there is nothing left to spend on items that will spare them the fine. It’s a complaint made by small business owners, too.

“This is an illogical move. There is no way that many owners will be able to avoid the extra tax,” POMIDA president Stratos Paradias told Fortune.

Capital controls

Greece’s cash economy is starting to gain momentum again and this is what the Finance Ministry is concerned about. Many in the country were forced to switch to online banking after capital controls were introduced in the summer of 2015 to prevent the collapse of the financial system at the peak of Greece’s crisis. But restrictions on the movement of cash gradually eased since then, and were fully removed in September, 2019.

Higher consumption taxes and increasing bank fees are also making credit and debit cards less popular.

A recent increase in fees announced by the country’s top four banks prompted the intervention of Prime Minister Kyriakos Mitsotakis in October, who asked the lenders to revoke the price hikes. The banks promised that they would review their decisions, but largely stuck to their guns. A few weeks later, officials from Greece’s competitions watchdog raided the headquarters of the country’s top four banks—Piraeus Bank, National Bank, Alpha Bank, and Eurobank—amidst an investigation into price-fixing practices. The probe is ongoing.

Despite the tough conditions, Greece is taking steps to ease taxes elsewhere for the first time in more than a decade. The push for cashless trade is part of a broader reforms package lowering taxes for the self-employed, workers, companies and investors. This is helping boost sentiment though improvements have yet trickle down to personal finances as the job market remains difficult and any increases to the average Greek’s disposable income is negligible.

For some, new law is seen as an invasion of privacy.

Elena Nicolaou, who recently started working as a kindergarten teacher after completing university studies last year, is already concerned about how much information the government has on her. She is earning the minimum wage, which is around 600 euros per month, and doubts whether she will succeed in avoiding the fine.

“They want to know everything about me. My shopping habits, where I am and where I’m going. It’s none of their business. I pay my taxes and that’s enough,” she said.