While negotiations between Greece and its creditors continue, the latter seems determined to impose the value-added-tax (VAT) rate of 23 percent on both accommodation and food services and do away with the reduced VAT rate that currently applies to the Aegean islands.
Currently, the VAT rate on Greek hotels is at 6.5 percent and food services are charged with 13 percent.
The creditors aim for the reform to target a net revenue gain of 1 percent of GDP on an annual basis from “parametric changes”.
According to the creditors’ proposal, the new VAT system will (i) unify the rates at a standard 23 percent rate, which will include restaurants, hotels and catering, and a reduced 13 percent rate for basic food energy, and water (excluding sewage), and a super-reduced rate of 6 percent for pharmaceuticals, books and theater; (ii) streamline exemptions to broaden the base and raise the tax on insurance, and (iii) eliminate discounts, including on islands.
The new legislation to reform the VAT system would be effective as of July 1, according to the creditors’ proposal.
In addition, the creditors claim that the increase of the new VAT may be reviewed at the end of 2016, provided that equivalent additional revenues are collected through measures taken against tax evasion and to improve the collectability of VAT.
Greece’s proposal on the VAT rate
Greece’s latest proposal aims for the VAT reform to target a net revenue gain of 0.93 percent of GDP and includes food and hotels at the 13 percent rate.
The Greek side wants the current 30 percent reduced VAT rate for the islands to remain untouched.
Following an inconclusive Eurogroup in Brussels on Thursday, it has been announced that another will be held over the weekend, on Saturday at 6 pm Greek time.