New VAT increase on the cards

New VAT increase on the cards

Thousands of goods and services will suffer fresh hikes in prices and fees as a result of the increase in the top value-added tax rate by one percentage point that sources say has been agreed between the government and the representatives of the country’s creditors.

The plan is for the 23 percent rate on most commodities to be raised to 24 percent as of July 1, with a triple target: to plug a major part of the fiscal gap of 1 percent of gross domestic product for the 2017-18 period, to cover the gap left from the exemption of private schools from value-added tax, and to avoid a VAT hike on electricity and water utilities.

Discussions between the two sides have also focused increasing the lowest VAT rate, applying to magazines, books, newspapers etc, that currently amounts to 6 percent.

A top Finance Ministry official told Kathimerini that the VAT rate adjustments are seen fetching an additional 400-500 million euros into the state coffers each year.

Nevertheless, after years of VAT rate adjustments, it is now clear that revenues from VAT are going down instead of up. In 2015 the budget had foreseen VAT revenues of 14.4 billion euros, but the final figure was only 13.6 billion, even after many commodities were bumped up from the 13 to the 23 percent bracket last July. In 2014 VAT revenues came to 13.61 billion euros, against an anticipated 13.89 billion.

According to the government’s plan, the products set to see a one percentage point VAT hike in the second half of the year belong to the following categories: Packaged food (pasta, rice, coffee, flour, chocolate etc), refreshments and juices, food service, public transport and taxi fares, services by writers, composers and other artists, home repairs, flowers and plants, sewage services, and pet food.

July will also see the second wave of VAT adjustment for many Aegean islands, with a great number reverting to the nationwide rates of 6, 13 and 24 percent, losing the 30 percent discount they currently enjoy. However, Lesvos, Chios, Kos and Samos will likely be exempt due to the high number of refugees and migrants on those islands.

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