Greece new VAT rises in creditor talks

Fri 10th Jul 2015

On 9 July, the Greek government offered new, austerity VAT rate increases to its creditors in an attempt to win new, third bailout, and potentially a small debt write off.

The VAT rises are accompanied with corporate tax increases – from 26% to 28% in 2016 – and the whole package is worth €12 billion compared to the last packaged offered by the Greeks of €8 billion.

The new rates will be retroactively introduced from 1 July 2015.  They will be reviewed at the end of 2016 with a view to reversing them if other measures related to reducing tax avoidance prove more successful.

Proposed rises in reduced VAT rates

The latest proposals come following a ‘No’ referendum result on Sunday to the creditors’ proposed spending cut requirements. Highlights of the latest Greek VAT rise proposal include:

  • Hotel accommodation, energy, basic foodstuffs and water rising from 6.5% to 13%.  This will not be implemented until 1 October 2015 to avoid this year’s tourism season.
  • Restaurants and catering services rise from 13% to 23%
  • Reduction of the 6.5% to 6%, now only applicable to books, theatre admission and certain medicines
  • The above changes will apply to the holiday islands, but not until 1 October 2015.

Previous VAT rises insufficient for creditors

The previous packages of VAT rises proposed two weeks ago were not accepted by the Greek’s key ‘Troika’ creditors of the IMF, ECB and EC.

Greek bail out talks broke down despite a compromise by the IMF on modified VAT rises.  Greece had offered VAT increases on a range of products as part of a package of tax reforms and spending cuts to secure further funding help from the International Monetary Fund, European Central Bank and European Commission.  Greece cut VAT on restaurants to 13% in 2013.

The old plans had included retaining the standard 23% VAT rate, but extending it to range of other products. A 13% rate would be levied on electricity, hotel accommodation and restaurants and related catering services. A second, reduced rate of 6% would have been levied on books and medical supplies.  This proposal for 3 rates went against the IMF’s preference of two rates to help simplify the administration of the regime.

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