This content is from: Greece

Greece: Bridging the VAT gap: The case for Greek VAT reform

Vetta Zournatzidi
Greece's widely-reported VAT reform package has been officially voted by Parliament. The package seeks to boost VAT revenues through the amendment of VAT rates, the gradual abolishment of the favourable VAT rates for Greek islands and the adoption of measures to improve VAT collection.

Greece has embarked on a reform of its VAT system to secure financial assistance from the European Stability Mechanism (ESM), since "streamlining of the VAT system and broadening of the tax base to increase revenue" were set by the Euro Summit as prerequisites for the conclusion of an agreement.

The main pillar of the VAT reform consists of radical changes relating to the applicable VAT rates – 6%, 13% and 23%. The super-reduced rate of 6% rate now applies only to very limited cases (for example, certain medicines and books), whereas the list of goods and services subject to the reduced 13% rate has been significantly confined. 23% rate will apply to processed or packaged food products, restaurant services, taxi fares and so on. As regards hotel accommodation services, the transition from 6% to 13% will come into effect as of October 1 2015.

Moreover, the longstanding favourable VAT regime applicable on certain Greek islands will be gradually abolished. Greece was forced to repeal the reduced (by 30%) VAT rates in developed islands as of October 1 2015, whereas in less developed and remote islands said rates will be abolished as of June 1 2016 and December 31 2016 respectively.

In the field of VAT compliance and in an attempt to decrease VAT evasion, a groundbreaking mechanism has been introduced. Retail transactions (exceeding €1,500 ($1,700)) and transactions between businesses (exceeding €3,000) settled via bank means fall within the ambit of said mechanism and will be subject to an immediate withholding and remittance of VAT from bank institutions to the Greek state. It remains to be seen how various systemic and technical challenges will be dealt with, to effectively address practical aspects of the required interconnection between bank institutions, tax authorities and taxpayers.

The aforementioned changes have paved the way for an increase in the VAT base; however, the key challenge is to improve VAT enforcement and collectability of VAT by bridging the Greek VAT gap without decreasing consumption, so that the VAT pendulum may swing towards increased VAT revenues for the Greek state.

Vetta Zournatzidi (vetta.zournatzidi@gr.ey.com)
EY

Tel: +30 210 2886 326
Website: www.ey.com/GR

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