The target set for extra revenues of 400-500 million euros per year from a planned increase in the highest value-added tax rate is viewed as ambitious. The proposal to raise the top VAT rate from 23 to 24 percent has been accepted by the country’s creditors, but Finance Ministry officials argue that it is only under normal circumstances that such a hike would fetch the above amount.
The same sources say that the government has not factored in some significant factors that may well lead to the measure having the opposite result to that desired. Raising the top rate to 24 percent, they say, will lead to the growth of tax evasion, as many self-employed professionals and small enterprises (mainly of food servicing) will feel entitled to not issue receipts.
The ministry plan also fails to take into account the effect of the increase in direct taxes, the rise in other indirect taxes (cell phone service levies, pay-TV charges etc), as well as the hike in social security contributions, which will lead to a further decline in consumption – on which VAT revenues are based.
According to the same officials, the top VAT rate has already reached particularly high levels, and they note there is no scope for a further hike. They add that the increase set to come into effect as of July 1 will also pave the way for many commodities with the middle VAT rate (13 percent) to be transferred to the top rate of 24 percent, as in case of a need for new measures the only solution will be to shift commodities from the lower rate to the highest.
Government officials told Kathimerini yesterday about an effort to have the VAT hike postponed. That would mean the increase coming into force from 2017 or 2018, depending on whether the fiscal gap of 2016 is filled and whether the creditors agree not to demand new measures to offset the non-application of VAT on private education.
Constantinos Michalos, the head of the Athens Chamber of Commerce and Industry (EBEA), said that “the rumored increase of the top VAT rate will be the killer blow for the market, which is suffering from the drop in demand.”