VAT drop in food catering would have minimal effect on revenues

A possible reduction of value-added tax on restaurants and other food oulets from 23 percent to 13 percent in line with industry demands would entail a decline in public revenues by 26 million euros this year and an increase by 53 million euros next year, while sending turnover soaring, according to a study delivered to the prime minister.

The report drafted by the Finance Ministry suggests that if the VAT had been reduced from April 1, it would have created an increase in turnover by 1.04 billion euros this year and by 931 million euros in 2014, i.e. 2 billion euros until the end of 2014. Ministry officials underscore the multiplying effect this would have on public revenues, social security funds and employment.

In strict fiscal terms, the revenues lost from VAT until end-2014 would amount to 62 million euros, but the medium- and long-term benefits would be far greater. Finance Minister Yannis Stournaras said on Thursday that “this is an issue that we will discuss again in June if the revenues go well and we are within our fiscal targets. If we fail somewhere – say by 200 million euros – we will unfortunately have to cut it from somewhere else.”

Stournaras is worried that this issue may well meet resistance from the country’s creditors. However, government officials as well as market professionals say that the loss of 62 million euros is very small, especially compared with the revenue shortfall from the estimates for receipts from VAT on food services, as Alternate Finance Minister Christos Staikouras had also told Kathimerini last month.

He said that a comparison of the period of September 2010 to August 2011 and September 2011 to August 2012, showed that additional VAT revenues from restaurants, tavernas, fast-food sellers and other related businesses amounted to no more than 160 million euros, against an original forecast for 1 billion euros which was later revised to 800 million.

The association of food catering professionals (SEPOA) stresses that the VAT hike has seen their sector’s turnover slide by 40 percent, with over 4,000 enterprises shutting down and more than 30,000 jobs lost. Popular foreign chains have also departed from Greece or reduced their branch networks.

The government is also concerned about the problem of tax evasion in the sector, which is said to have increased since the VAT rise. Proposals for cracking down on tax evasion include connecting restaurant tills to the Finance Ministry’s online Taxis system and imposing stiffer fines on dodgers.