Value-added tax revenues from property transactions could be far higher if the rate was reduced from its current level of 24 percent to 13 percent, according to an ongoing study by the Foundation for Economic and Industrial Research (IOBE).
Such a move would also help increase capital inflows from abroad, from 500 million euros in 2017 to an annual rate of over 800 million euros by 2022, according to even the most pessimistic scenario (with the minimum expected rise in transactions).
IOBE’s survey has so far found that the imposition of a 24 percent VAT rate on new property transactions has become a serious obstacle for investments in new homes, without offering any significant fiscal benefits. Since the onset of the financial crisis, revenues from this tax have been dramatically reduced due to the collapse of new house transactions. Takings, therefore, are seen to have gone down 80 percent since the market’s peak in 2008, ranging between 11 and 14 million euros on an annual basis.
Now, the tax is being levied against buyers of secondary residences – the main residence is exempted – whose building permits were issued after January 1, 2006. In contrast, older properties are only saddled with the transaction tax, which has been reduced to 3 percent from 10 percent up to 2013.
Athanassios Christakis, a board member at the Association of Enterprises for the Quality and Development of Constructions (SEPAK) that commissioned the survey, says that the difference of 20 percent between the tax on new and old properties is leading candidate buyers to opt for aged houses, thus, in turn, hampering the recovery of construction activity. Buyers, Greeks and foreigners alike, consider the 24 percent rate prohibitive and would rather buy an old property instead in order to benefit from the reduced transaction tax.
Given the negligible returns of the tax for the state, it is clear that its possible reduction to 13 percent would not meet any particular opposition from the country’s creditors, while bringing multiple positive effects. According to IOBE, such a policy move would lead to an increase in demand for new homes, while bolstering investment interest from abroad.