Greece VAT compromise failed to save bailout

Mon 29th Jun 2015

Greek bail out talks broke down this weekend despite a compromise by the IMF on modified VAT rises.  There will a state referendum on the terms of the bail out on Sunday 5th July, although the other members of the Eurogroup and the ECB have now withdrawn financial support of the illiquid Greek banks.

Last week, Greece 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 IMF, ECB and European Union.  Greece estimates it could raise €2 billion per annum from the VAT changes.  Greece cut VAT on restaurants to 13% in 2013.

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

Greek reduced VAT increases

The list of supplies currently at reduced rates that may be reclassified at the full, standard rate include:

  • Water supplies
  • Transport of passengers
  • Admission to cultural events, cinema and theatre
  • Pay TV
  • Social housing
  • Repairs to private housing
  • Agricultural imports
  • Social services
  • Some clothing

The VAT rate discount for the Greek islands would be withdrawn.

There would also by company tax rises and pension contributions by companies.

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