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The European Commission is not leaning on Greece to hike its value-added tax (VAT) rate on food, the European Commissioner for Economic and Financial Affairs, Taxation, and Customs, Pierre Moscovici, has said in response to a question in the European Parliament.
Two questions were posed to the European Commission by Greek Member of the European Parliament (MEP) Kostas Chrysogonos, who drew attention to the rise in poverty levels in Greece, which he attributed in part to the deeply unpopular fiscal reforms that Greece has undertaken since requiring a financial assistance package from the troika of international lenders – the European Commission, the European Central Bank, and the International Monetary Fund.
More recently, the troika has called for Greece to significantly simplify its VAT regime, in particular by limiting the scope of reduced rates and reining in exemptions. Chrysogonos asked whether, as part of these calls for reforms, the troika is seeking a VAT increase on food in Greece, which he warned would exacerbate the hardship being felt by Greek taxpayers following the financial crisis.
In response, Moscovici confirmed that "the Commission is working with the authorities to improve VAT administration and enforcement as a key means to improve the efficiency of the VAT system. It is also working with the authorities to streamline the multitude of VAT rates and exemptions, but this has not included suggestions to raise the VAT rate on food."
He noted that the Commission's views with regards to VAT policy priorities for Greek are set out in pages 30 and 31 of the European Union's fourth review of its financial assistance program for Greece. This report called on Greece to close the VAT gap, as historically the performance of the VAT system has been weak.
It said: "The overall VAT tax-efficiency ratio – the ratio between VAT tax revenue collected against what would be collected if all consumption was taxed at the standard VAT rate – is among the lowest in the EU. This reflects in part a multitude of VAT reduced rates and exemptions for certain product categories and regions. However, it also reflects widespread non-compliance with the current system (both under-declaration and under-collection). The VAT collection ratio is some 40 percent of total potential revenues, worth up to some EUR10bn (USD11.7bn) a year in non-collected revenues."
The problem of non-compliance has become especially acute during the crisis it says. "Tax efficiency has dropped visibly until 2012, likely reflecting the tight liquidity situation which has forced many companies and households to circumvent the taxation system."
Greece may introduce further reforms to its VAT regime this month, the report says, based on a review of the VAT reform options available by the Commission and Greek authorities in June 2014.
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