The EU auditors together with the Greek government, posed the question of raising the Greek VAT on food on the agenda of discussions. According to a European Commission study, the Greek government collects around €15 billion a year from the Value Added Tax (VAT), but also “loses €10 billion” due to many exemptions in its application and some reduced rates that apply for some products or regions of Greece.
This proposal by the European Commission comes as a solution to close the VAT gap being created by the many standing exemptions. The Greek VAT gap is the largest in the EU and facilitates tax evasion practices. The Troika asks the Greek government to proceed with reforms and changes on the existing VAT framework, so as to make up for at least a small amount, up to half or one billion euro, of the total €10 billion necessary for the country.
The combined Troika task force estimates that not only additional revenue could be secured by this new raise, but this could also repeal some of the imposed harsh measures or lead even to the reduction of the very high VAT rate, which in Greece is currently at 23%.
For the Greek government, such proposals are met with skepticism and cause serious headaches, because any adjustment made to the VAT inevitably leads to increases in essential everyday goods such as food and water, among other things. Today, these goods are taxed at a reduced VAT rate, particularly on Greek islands, which are taxed with 30% lower rates than normal.
The government seems to be puzzled with this new prospect, as it has stated that no additional new taxes will be imposed.