Proposals include big tax hikes

Out of the 7.9 billion euros in fiscal measures that the government proposed to the country’s creditors on Monday, the lion’s share, or 7.3 billion euros, concerns increases in taxation and in social security contributions. This rate of 93 percent of the fiscal adjustment proposed constitutes the weakest point of the Greek plan submitted, as according to the creditors the tax increases will lead to further economic contraction, which in turn will entail more measures.

The government proposed three value-added tax rates: a low one of 6 percent for medicines, books and theater tickets, a medium one of 13 percent for food (mostly fresh), electrical energy, hotel accommodation and food service, and a high one of 23 percent for all other products and services. That is seen raising 1.36 billion of extra revenues per annum.

However, the target is for additional revenues of 1.8 billion euros, so the government is also considering bringing the VAT on food service up to 23 percent, and abolishing the special status granted to Aegean islands (with a 30 percent discount on VAT rates). It is possible two-tier island VAT rates could be introduced to satisfy minor coalition partner Independent Greeks.

Over 1,500 enterprises will have to pay an extraordinary levy of 12 percent on their 2014 profits, in two installments, one this year and one in 2016. The measure should fetch 1.35 billion euros per year, and will now concern firms that earned at least half a billion euros, against an original proposal for a threshold of 1 billion euros.

There is also a proposal for a hike in corporate tax from 26 to 29 percent, concerning the nearly 15,000 companies with pretax earnings of at least 100,000 per year, set to fetch 410 million euros.

Other measures include an increase in the solidarity levy for households earning at least 30,000 per year, a hike in the luxury tax from 10 to 13 percent, new taxes on television advertising and on online gaming, and the auction of licenses for cell phone companies. The single property tax (ENFIA) will remain intact, while farmers will see significant tax hikes.