Greece is under pressure to adopt a single rate of value-added tax, in ongoing talks with its the International Monetary Fund and its European creditors.
The Brussels group of the ECB, IMF and EU has proposed that Greece should adopt a VAT rate of 18%, which would replace its three VAT rates of 23%, 13%, and 6.5%. Greece's creditors have also called on the government to remove tax breaks for Greek islands.
With talks between Greece and its creditors continuing the government submitted yesterday its proposal for the overhaul of the VAT regime in an attempt to speed up the negotiations. According to the proposal, there will be two VAT rates instead of the current three: the highest would be set at 18% and relate to virtually all services and commodities except food and medicines, with a discount of 3% for non-cash transactions. The lower rate would be set at 9.5% relating to food, pharmaceutical products and books, with the same discount applying to cash-free transactions.
Nevertheless EU Directives rule out the possibility of a two-speed VAT according to the method-of-payment. That means that a product or service could not have a different VAT rate for cash transactions and a different one for credit cards. While state agencies were well aware of the legal framework prohibiting a two-speed VAT rate the leadership of the Ministry of finance seemed to be completely unaware. While Greek Finance Minister Yanis Varoufakis said Monday that he was confident that an agreement with bailout creditors will be reached within the next week submitting a proposal that contradicts EU legislation further undermined government credibility.
Varoufakis's proposal for a a two-speed VAT system was followed by a tweet on Tuesday night condemning the “internal Troika” - possibly referring to intra-party opposition - for rejecting his proposals while clarifying that the Brussels group will discuss his ideas on Thursday.