Tax & Accounting Blog

Greek Parliament Approves VAT Changes

Blog, Indirect Tax, ONESOURCE May 23, 2016

Late last Sunday night the Greek Parliament approved a new Bill aimed to comply with fiscal targets agreed with its creditors. On negotiations held last month Greece and the representatives of the institutional creditors (European Commission, European Central Bank, International Monetary Fund and European Stability Mechanism) agreed on different measures worth 2.7 billion Euros to be adopted by the Greek government, which will allow the country to comply with the fiscal targets set as part of the bailout program.

The new Bill titled “Urgent Provisions for the Implementation of Fiscal Targets Agreement, Structural Reforms and Other Provisions” contains provisions that introduce changes to the VAT Act. The main change from a VAT perspective refers to an increase of 1% in the current VAT standard rate, which will hike from 23% to 24% as off 1 June 2016. The VAT increase could allow 400-500 million euros extra annually but it is unlikely in Greece’s current situation and could lead to a revenue decrease because of increased tax evasion.

The Bill also contains the name of the second group of islands in which the VAT discounted rate will be abolished effective 1 June 2016. The referred islands are Syros, Thassos, Andros, Tinos, Karpathos, Milos, Skyros, Alonissos, Kea, Antiparos and Sifnos. Last year the Greek Parliament approved a staged abolition of the VAT discounted rate that benefited the certain Greek islands and in accordance the 30% VAT discount was abolished in Mykonos, Naxos, Paros, Santorini, Rhodes and Skiathos effective 1 October 2015. The abolition for the second group of islands listed in the new Bill will be effective 1 June 2016 and the discounted rate for the remaining islands will be eliminated effective 1 January 2017.

The Bill was presented to Parliament on the 18 of May and was discussed over the course of few days, being approved on the late evening of Sunday 22 of May. At the beginning of the negotiations the government had announced that the VAT increase of the standard rate would become effective on 1 July 2016, however, after discussions with its creditors, and due to their pressure, the government decided to move the date to the 1 June 2016.

This is not the first time Greece has implemented tax changes in order to meet conditions agreed with its creditors. Last year the country eliminated several products from the list of goods subject to the reduce rate of 13%, which are now subject to standard rate, and also commenced the process described above of increasing the VAT rates applicable to certain islands that were subject to lower VAT rates than continental Greece.

Given the state of the Greek finances and the amount of international debt the country has, it is expected that other tax measures will be adopted in the future to comply with fiscal targets established by the international creditors.