Greece, Troika Talking Through Single VAT Rate
Greece is under pressure to adopt a single rate of value-added tax, in ongoing talks with the troika of international lenders.
The International Monetary Fund has proposed that Greece should adopt a value-added tax rate of 18 percent, which would replace its three value-added tax rates of 23 percent, 13 percent, and 6.5 percent.
The troika has long been calling for VAT reform from Greek authorities, warning that the broad scope of the nation’s reduced rates causes distortions and its high standard rate encourages evasion.
Research has shown that countries that levy VAT rates exceeding 20 percent see a stark increase in non-compliance relative to those with sub-20 percent rates, and the IMF hopes that more uniform rates in the short-term coupled with a lower rate will improve compliance and unlock efficiency gains and higher revenues. Meanwhile, a single rate of value-added tax would cut the administrative burden on businesses and the tax authority.
According to Greek media reports, the troika is seeking the introduction of a single 18 percent rate of VAT, to shore up the nation’s fiscal consolidation plans. The Government has said it would instead seek to introduce a 15-16 percent rate, and it has also talked of retaining one reduce rate of VAT, which would cover medicines and basic foodstuffs. The IMF has said that the Government’s proposals would lose revenue.
The troika has also called on the Government to remove tax breaks for Greek islands.
Greece levies three value-added tax rates but very few items are subject to the headline rate of 23 percent:
The 6.5 percent rate is levied on books, newspapers, and periodicals; theater admission; hotel accommodation; and certain pharmaceutical products.
The 13 percent rate is levied on foodstuffs; water; certain pharmaceutical products; medical equipment for disabled persons; the transportation of persons; admission to cultural services, with the exception of theater admission; social services and social housing that are not otherwise exempt; renovation and repair work to residential housing; agricultural inputs; restaurants; admission to sporting events; funeral services; medical and dental care; repairs; and domestic care services.
Source: TaxNews – Greece, Troika Talking Through Single VAT Rate
