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Greek VAT Increase on the Cards of Negotiations

The Ministry of Finance, Yanis Varoufakis, in an attempt to appease the requests of creditors and reach an agreement, at least when it comes to tax demands, will apply a single VAT flat rate, according to the Greek news website ‘To Vima’.

According to journalists’ sources, the proposal that is currently on the table of negotiations in the Brussels Group concerns a new VAT system with three different rates and not two, as the case was up to now, where one rate is single and the remaining two will be applied to specific categories and products.

The plan drawn up by the Greek government includes a single rate of 18% and two lowers ones, of 15% and 7% or 8%. On the other hand, institutions and notable the IMF push for a rate as high as 20%. What is of interest, nevertheless, is that a proposal is the high flat rate to be applied to cash purchases whereas purchases of certain products by card might receive a discount of 3%, essentially rendering the rate for those cases at 15%. The logic behind this move, is that by using a credit/debit card, the government can have automatic access to the bank account of the taxpayer, ensuring the direct collection of VAT.

Within the rate of 18% are foreseen the following services and products: fuel, cigarettes, real estate, telecommunications, alcoholic drinks, clothes, shoes, cars, motorcycles, electrical appliances, hair salons, gyms, furniture, household items, etc. However a series of products today which is at a rate of 13% will either go up to 15% or will be reduced to 8%. For example, utilities bills, which the government does not wish to increase them to the high single rate of 18%.

Certain categories of food are to be placed under the lowest rate of 8% with most probable ones being bread, milk and eggs. Also the rate of 7% or a maximum of 8% will apply to medical drugs, which are currently subject to 6.5% VAT. Meat, fish, cereals, vegetables, coffee, tea, sugar, oil, honey, salt, pepper etc. today are at 13% and the Ministry is lobbying for the VAT rate not to be increased at 18% but some of them transferred to 15% and more to descend to 8%.

It is still uncertain whether tourism will remain in the lowest rate or will be found in the median rate of 15%. Creditors are advocating for it to be placed in the single rate, that is, 18%. As expected, reactions are building up, with most arguing that this will be another negative turn for the Greek economy and investment. Tourism stakeholders contend that tourist packages will be affected by the imposition of a single VAT rate (VAT is currently at 6.5%), which will render Greece uncompetitive compared to the neighboring countries, whose VAT remains at 8% -10%.