Greece Suggests 13% VAT Rate for Hotels in its Bailout Proposal to Creditors

A value-added-tax (VAT) rate of 13 percent on Greek hotels and the elimination of discounts on the country’s most popular islands, are included in the proposal the Greek government submitted to its international creditors on late Thursday, in hope of reaching an agreement on a third bailout.

The proposal includes suggestions for a reformed VAT system, through which the government aims to target a net revenue gain of 1 percent of GDP on an annual basis from “parametric changes”.

The proposed reformed VAT system includes a rate of 23 percent for restaurants and catering and a reduced 13 percent rate for hotels.

Currently, the VAT rate on Greek hotels is at 6.5 percent and food services are charged with 13 percent.

Greece’s proposal for a reformed VAT system also includes the elimination of the current (30 percent) discount* on the Aegean islands — starting with the islands with higher incomes and which are the most popular tourist destinations — except the most remote ones.

According to reports, with the term “most popular tourist destinations”, the government means the islands of Mykonos, Santorini, Rhodes and Kos.

The discount on other islands will be completed by end-2016, once appropriate and targeted fiscally neutral measures to compensate those inhabitants that are most in need are determined.

Greece’s creditors — the European Commission, the European Central Bank (ECB) and the International Monetary Fund (IMF) — will review the new proposal in Brussels on Friday. On Saturday, the proposal will be examined by the Eurogroup (Eurozone finance ministers) in Brussels.

If the proposal is accepted, the new VAT rates on hotels and islands will be implemented from October 2015.

The government has submitted the same proposals to Parliament and will have a debate on them on Friday.

Greek Proposal to EC, ECB, IMF (full text, English)

* The VAT rate for dozens of Aegean islands is currently reduced by 30 percent against the current rate that applies for the rest of Greece. This regime was imposed to offset the high cost of transporting goods and to boost tourism development.