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Greek PM Announces VAT Cuts Ahead of May Elections

Days before municipal and European Parliament elections on May 26, Greek Prime Minister Alexis Tsipras announced a series of new relief measures to take effect in 2019-2021 including the reduction of value-added tax (VAT) on restaurants and hotel accommodation.

Greece's PM Alexis Tsipras.

Greece’s PM Alexis Tsipras.

According to Tsipras’ announcement, VAT on food and beverage items will drop to 13 percent from the current 24 percent, and on goods and services including hotel stays (as of 2020) – both key factors in tourism – down to 11 percent from 13 percent.

Other measures include the introduction of a permanent benefit for pensioners, the reduction of corporate tax to 25 percent by 2021 from 28 percent, and relief incentives to millions of Greeks owing tax and pension contributions.

Tsipras also said his government was aiming to eliminate the so-called “solidarity tax” on annual incomes of up to 20,000 euros and lower it for all other incomes as of next year.

More specifically, reduced to 13 percent food and beverage items include all restaurants and food services, cafes and bakeries, as well as a number of food items such as sugar, ice cream, and coffee.

The total benefits package for 2020 comes to 1.3 billion euros.

According to the government’s plan, as of 1 January 2020:

VAT rates on goods and services will be reduced from 13 percent to 11 percent and includes hotel accommodation services,
– Solidarity tax will not apply for incomes under 20,000 euros,
– Income tax will be reduced for taxpayers living on islands with up to 3,000 inhabitants,
– Property tax (ENFIA) will be reduced on islands with a population of up to 1,000 inhabitants,
– Heating fuel costs will be reduced for remote mountain area residents,
– VAT on electricity and natural gas bills will be slashed from 13 percent to 6 percent for both households and businesses.

The prime minister also pledged to increase subsidies to businesses towards insurance contributions for young employees up to 25 years of age by 80 percent, and by 25 percent for those up to 29, the re-institution of income tax deductions, and reduced taxes by 10 percent for farm cooperatives,

There has been no verification as to whether Greece’s lenders, currently assessing the country’s post-bailout progress, have approved of Tsipras’ pre-election tax breaks.

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