Iceland cuts VAT rate from 25.5% to 24% January 2015
Iceland has announced that it will lower its standard VAT rate from 25.5% to 24% on 1 January 2015.
The reduced VAT rate will be increased from 7% to 12%. The reduced rate applies to hotel accommodation, broadcast services, newspapers, recorded music and basic foodstuffs. A number of previously exempt or zero rated supplies will now be subject to the reduced VAT rate, including certain types of transport.
The VAT rate was hiked to 25.5% in January 2010, which was the highest in Europe at the time. It was part of a raft of austerity measure at the height of Iceland’s near bankruptcy during the financial crisis. Since then, the government has managed to reduce sovereign debt from 90% of GDP to just above 70%.
The announcement in the 2015 budget also included a proposal to scrap the Commodities Tax too. This tax was introduced in 1998 on a range of new and second hand imported and domestically manufactured goods. The tax ranges from 15% to 25% of the value of the goods.