ECONOMY

VAT on new construction to be implemented by 2005

Value-added tax (VAT) will be levied on the construction of new commercial property effective from 2005, the Finance Ministry said yesterday, deflating press speculation that VAT could be imposed next year as part of efforts to boost the state coffers. The introduction of VAT on the construction of commercial real estate would serve two purposes, Economy and Finance Minister Nikos Christodoulakis said. «VAT on the construction of new buildings is intended to increase competition and also to benefit house buyers,» he said. Christodoulakis said the framework for the introduction of VAT in the real estate market was far from ready. «The government is currently holding a dialogue with all relevant parties on the issue. Preparations for setting up the appropriate framework and conditions would take years,» he said. Greece is the only country in the European Union not to have real estate VAT, having received a delay from Brussels in 1986. It has the option of extending the latest exemption which expires on December 31. A tax reform report issued by the Georgakopoulos committee early this year suggested the imposition of VAT on new commercial property construction next year to replace a plethora of other taxes and also to broaden the tax base. The new tax would also be expected to help cut down on tax evasion and reduce construction costs. Christodoulakis also announced a tighter rein on borrowing by unlisted state-owned enterprises, effective next year, as the government seeks to bring its burgeoning debt under control after revisions by Eurostat blew a hole in its claim that the debt to GDP ratio last year had fallen below 100 percent. The reclassification by the EU statistical agency of capital injections to state-controlled enterprises, such as railway company OSE and flag-carrier Olympic Airways, and assuming the debt of institutions such as hospitals also meant that Greece will be stuck with a budget deficit to 2004. The government guarantees that borrowing by state-controlled enterprises will be kept below 200 million euros next year, half of the 410 million euros allocated this year, Christodoulakis said. «Guarantees for such borrowings averaged out to 4 percent of GDP between 1990 to 1993. This year, the figure is 0.3 percent and next year should fall to 0.15 percent of GDP,» he said. State-controlled enterprises will only be permitted to take out loans to fund investments aimed at improving their productivity and which are not covered by the public investment program. Companies will be required to draw up balanced budgets and come up with a timeframe for reducing their debts. Tariff increases will have to be linked to productivity increases. «The Greek public debt is a far cry from the EU average,» Christodoulakis said.