Greek financial crisis – possible VAT changes

July 2015

Greek VAT reforms in the economic crisis

Yesterday Greece became the first European Union country to miss their deadline to repay a loan, totaling around £1.1bn, from the International Monetary Fund (IMF), after their request for another extension for the previous bailout was denied on Tuesday. By being in arrears to the world’s financial backbone, Greece immediately lose access to IMF resources and could eventually be kicked out of the fund entirely. If the country goes bankrupt or decides to leave the 19-nation Eurozone, the situation could create instability in the region and resonate around the globe.

Greece’s total debt is around €360,000,000,000 which is 180% of its GDP and with around 25% of its citizens unemployed what are Greece doing to try and combat this economic crisis?

Greece’s latest proposals are focused on VAT rates, early retirement measures and tax increases, which aim to cover a good part of the country’s budgetary gap, which is around €900M, the proposals around VAT could bring in around two billion euros. In terms of the VAT proposals last week the government offered VAT increases on a range of products, so the standard rate of 23% would remain but the scope would change with the standard rate being extended to more products including:

• Water supplies
• Transport of passengers
• Social housing
• Repairs to private housing
• Agricultural imports
• Social services
• Food Outlets
• Hotel stays

But nothing is so far confirmed with many other products and services also in the mix for potential VAT raise and the lower 6% reduced rate could be limited to books and medical supplies. Greece’s creditors also want the 30% VAT discount applied to Greek islands eliminated making VAT uniform throughout the country but Greece wants to keep the discount in place.

There is a referendum due to take place on Sunday 5th July, but whether or not this will go ahead or not is still up in the air, with some sources believing negotiations have already taken place but Prime Minister, Alexis Tsipras is still insisting that that referendum is going ahead.

Sundays’ referendum would see a vote on whether or not Greece will accept the creditor’s terms for the bailout, as the left-wing Government so far has been in deadlock with its creditors for months. A ‘No’ vote could see Greece out of the Eurozone and whilst the Prime Minister is urging for a ‘No’ vote he does not want out of the Eurozone and insists a No vote does not mean they will have to leave – but creditors see it differently.

But with banks not opening, withdrawal caps on ATMs and pensioners handouts limited to €150 a week it is not looking good for Greece so the referendum is looking more important now than ever and are they really in a position to get a better deal with creditors? With the referendum more than likely to go ahead its now in the hands of the Greek public to vote.