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Greece Concedes Hotel VAT Hike To Appease Troika

by Ulrika Lomas,, Brussels

05 December 2014

Greece has offered to hike the value-added tax rate on hotel stays as part of a package of measures put forward in a bid to have its Budget and a bailout review signed off by the troika of lenders this month.

The VAT rate on hotel stays, which was cut to 6.5 percent in 2012, would be raised to 13 percent under the package, which also includes a two-year pension freeze and a proposal to introduce a VAT lottery to boost voluntary compliance rates.

The package is thought to offer a half-way compromise on a list of remedies called for by the troika in a recent 47-page letter received by the Greek authorities, in which the troika – comprising the European Central Bank, the European Commission, and the International Monetary Fund – had rejected the initial fiscal plans put forward by Greece. The nation's counterproposal has since been rejected by the troika, but the Greek Government is stubbornly digging in.

Greek Prime Minister Antonis Samaras, who has aspirations to cut Greek tax rates across the board, said: "I cannot accept unreasonable demands. We are at the end of 2014 and nobody has the right to treat us like they did two-and-a-half or four years ago, when everything was collapsing. We are ready for the final agreement."

The troika has long been calling for a simpler VAT regime in Greece to support fiscal consolidation efforts and to fund a reduction in the headline rate of VAT, in a move that it believes will improve compliance rates. Greece's headline rate of 23 percent would fall to about 19 percent, under proposals put forward by the International Monetary Fund, providing Greece also limits its extensive list of goods and services subject to reduced rates or exemptions.

The Greek Government, however, is unlikely to give way to pressure for further changes to its VAT regime, having struggled for months to secure approval to expand the scope of its higher 13 percent reduced rate to restaurants, eateries, cafes, and tavernas from August 1, 2013.

Greece had hoped that its latest Budget, hailed by Samaras as the country's first balanced budget in decades, would free the nation from the troika's grip. However, the troika reportedly challenged the Government's estimates, according to The Wall Street Journal, which saw the letter received by Greece and its response.

With the deadline for the final review of Greece's bailout scheduled in the coming days, along with a final tranche of bailout funds, the dispute between the country and the troika is expected to lengthen the period that Greece's fiscal position is under scrutiny, with member states, invested in Greece's recovery, reportedly keen to maintain oversight for an additional six months.

Greece levies three value-added tax rates, and very few items are subject to the headline rate of 23 percent.

The 6.5 percent rate is levied on books, newspapers, and periodicals; theater admission; hotel accommodation; and certain pharmaceutical products.

The 13 percent rate is levied on foodstuffs; water; certain pharmaceutical products; medical equipment for disabled persons; the transportation of persons; admission to cultural services, with the exception of theater admission; social services and social housing that are not otherwise exempt; renovation and repair work to residential housing; agricultural inputs; restaurants; admission to sporting events; funeral services; medical and dental care; repairs; and domestic care services.

According to Samaras, the troika has called for Greece to add to the list of budget remedies that it has put forward, including the introduction of VAT on medicines, which he has rejected outright.

TAGS: tax | pensions | value added tax (VAT) | employees | retirement | budget | Greece | Europe | Other

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