Athens is faced with new tax reality

Adjusting to reality will be particularly difficult for the government, as in the next four months it will have to enforce measures which in many cases run counter to its pre-election pledges.

The restructuring of value-added tax, the gradual increase in the tax-free threshold to 12,000 euros per year for income tax, an amendment in favor of the state’s rather than debtors’ interests concerning the 100-installment payment scheme, the reduction of protection limits for main residences and the containment of early retirements are just a few of the measures that are forcing the new administration down to earth with a bump.

Still, the government has not yet examined – let alone set in stone – how it will implement the changes it has told its eurozone peers it will make. At the same time, so many disagreements have emerged within the government that it will take at least two to three weeks for the dust to settle to gain a clearer picture.

On the reform of VAT policy, there has been no specific decision; all that has been recorded is some fragmentary statements by government officials that create greater confusion. Finance Minister Yanis Varoufakis told Real FM on Wednesday that “we may decide on some small change to a VAT rate, which will neither concern the border regions nor books and the press. We are not making any pledges.”

Later, when asked by reporters, Varoufakis said that “VAT will not be increased. But if we do need to increase the tax on a product, we will see about that.”

Another minister said there will be no VAT hike on medicines, while a third implied that there may be a VAT increase on popular holiday islands such as Myconos and Santorini.

Meanwhile, after a meeting between Prime Minister Alexis Tsipras and Alternate Finance Minister Nadia Valavani, it has emerged that a bonus in the form of a 10 percent discount will be given to consistent taxpayers when it comes to paying this year’s income tax. This is aimed at allaying any reactions against the haircut of up to 50 percent of the tax due for debtors who repay their debts to the state in a lump sum.