In Greece, the VAT is a tax charged to consumers based on the purchase price of certain goods and services. Revenues from the VAT constitute an important source of income for the Greek government.
Under the new plan, VAT would be set at a flat rate of 18% hence replacing the multitude of rates now in force. There are currently three VAT rates (6.5, 13 and 23 percent), as well as a 30% discount on each for the Aegean islands.
A lower rate of 16%, which is apparently being considered by the government is unlikely to be accepted by Greece’s creditors. If the measure passes and the flat rate of 18% is imposed from the second half of the year, prices will drop in the real estate sector, pharmaceutical products, cosmetics, gas, alcohol, clothing, tobacco products, vehicles, home appliances, services (hair salons, gyms, etc.), which currently carry a 23% percent VAT rate.
Foodstuff currently carry a 13% rate; as an additional increase will be too heavy a yoke for the Greek households the government examines a reduced rate for prescription medicines and life necessities such as milk, eggs and bread. This reduced rate will be somewhere in between 6,5% and 9%, while there are thoughts for a 0% VAT rate on certain supplies; a measure currently in force in several European countries such as Ireland, Malta and the United Kingdom. Nevertheless the costs of production, packaging and transport of products should also be considered, as they contribute significantly to the product's retail price. On the other hand the tax on electricity, telecommunications and water; as well as restaurant bills, and transportation will increase to 16% or 18%.
Fearing a possible abolishment of the discount VAT rate that applies specifically to the islands of the Aegean representatives of the local administration are planning to held a meeting in Athens to discus options of action. Retirement homes might also get further affected by a possible rise of the tax on accommodation, a measure that will be bothersome for retirees who has already faced a major pension cutback.