Aspects of Competitiveness and Taxation Policy: The Case of Hellenic Shipping

Shipping and related activities account for over 7% of Greek gross domestic product (GDP), rendering proceeds from shipping sector activities indispensable for the Greek economy. The contribution of this study centers around measuring the mitigating consequences of an increasingly uncertain taxation and funding environment upon net receipts from shipping activities. Using data for 2002-2015 and employing the generalized method of moments, we find a coefficient of elasticity of net receipts from shipping activities with respect to taxation of -0.55, implying a 15% reduction in net shipping inflows due to higher taxation from 2014 to 2015. Moreover, net receipts from shipping activities are found to be significantly affected by the restriction in bank loans to the shipping sector, with the respective coefficient of elasticity found at 2.44. The policy implication that follows is that the pioneering tonnage-based taxation framework of Greece, as an alternative method of taxing corporate profits of shipping companies that has been in place for more than half a century, requires no revision. In terms of an ex post assessment, the competitiveness advantage it has granted has helped secure Hellenic shipping a 50% market share in the European Union (EU) and 16.1% in the world. The directive of the Directorate-General for Competition, as communicated to the Greek government in late 2015, tries to impose not only a considerable taxation burden over and above the current tonnage tax level, but also a complicated bureaucratic mechanism on the Hellenic sea transport activity. When such practices are exercised in the middle of an ongoing crisis in both the domestic and international markets, they may lead to eroding Greek and, given the high share of the Hellenic fleet in the total EU fleet, European Union sea transport competitiveness.