Plan on the cards for flat VAT rate of 18 pct

The government in Athens is planning to implement a single value-added tax rate abolishing all existing exemptions, according to Brussels officials.

Sources from the seat of the European Commission speak of a flat 18 percent VAT rate for all services and commodities with the exception of medicines, to come into force by the second half of the year. For now Athens categorically refutes such a scenario, noting that negotiations are still ongoing.

If the government and its creditors reach an agreement on the application of a flat VAT rate, the result for the state coffers could theoretically be positive, but there will be an extra burden on Greek households as all basic goods will become more expensive, except for drugs.

There will be a reduction of 5 percentage points in the 23 percent VAT rate imposed on many products and services, but also a 5 percentage-point hike for key commodities such as food, electricity, catering etc.

The special status granted to Aegean islands, with a 30 percent discount on VAT rates, will be abolished. This was originally introduced to offset the high cost of transporting commodities to the Greek islands.

In practice, a VAT adjustment will not necessarily lead to a rise in public revenues. Experts say that such a development could actually lead to an increase in tax evasion.

Meanwhile, German newspaper Bild referred to a detailed plan of reforms that Athens is promoting, citing Greek government sources. The plan, which provides for reductions to supplementary pensions, a luxury tax “on island holidays” and a government reversal on the minimum salary, will according to the German daily be discussed in Wednesday’s extraordinary Eurogroup meeting in Brussels.

The main points of the plan as published by Bild include the government dropping its election pledge for a minimum monthly salary hike from 580 euros to 751 euros, a luxury tax on Greek island holidays, a reduction in supplementary pensions, an end to early retirements and the exclusive use of revenues from the privatization of state corporations for paying off the national debt.

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