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Victoria Mindova

The first real tax reduction in Greece since the beginning of the crisis is already a fact. The government has introduced a temporary reduction in VAT in catering, lowering it from 23% to 13%. The measure will take effect as of 1 August and will be valid until the end of the year. The main condition for it being made permanent is for it to not affect the revenues to the state treasury.

Except for restaurants, cafes and other catering establishments, the reduced VAT will apply to tourist services as well. The aim is to reduce both the cost of the traders operating in these sectors and the prices of the goods and services they offer. Moreover, lower prices should increase consumption. In parallel, the government is planning to tighten the control over the concealment of income and to force the entrepreneurs to issue receipts to their customers.

"When the VAT was increased from 11% to 23%, the concealment of income in the restaurant business and related sectors increased dramatically," states Finance Minister Yiannis Stournaras. Now the government is doing reverence to the entrepreneurs but in return requires that they begin issuing receipts for all orders. "If we observe a decline in VAT revenues up until December, we will restore the high rate of 23%," Strounaras is adamant.
 
Deputy Minister of Economy and Development Thanassis Skordas states that the Greek government has decided to reduce the tax following the example of France of three years ago where the measure had not only improved the performance of the sector by increasing turnover of restaurants but had also led to an increase in the revenue to the state treasury.

The Greek model

The reduction in Greece will not be introduced everywhere. Those traders who want to be subject to 13% VAT must meet certain criteria. In the catering sector, the measure will apply to foods and soft drinks. The tax on alcoholic beverages will remain 23%.

The traders have to apply for the VAT reduction in the local chambers of commerce and ensure that the prices of 75% of the available menu items will be reduced by at least 5% in order for them to take advantage of the lower tax.

All those involved in the initiative will receive a special indicating sign which will be placed in view of the customers in order for them to see it. Thus, the customers will know that the specific establishment is operating at the reduced VAT rate and that its prices are lower than the prices of its competitors. The chambers of commerce will provide the indicating sign and will also be responsible for the price control. The traders will not be entitled to benefit from the lower VAT if they have not reduced the prices of the menu items by at least 5%.

The special certificate of VAT reduction will be both in Greek and in English in order for tourists to more easily find the establishments with lower prices due to the reduced VAT.

"So far, 50% of traders in the sector are willing to reduce their prices since the tax will be lower," states George Kavatas, chairman of the restaurant union in Greece. "I think that after the first establishments place the indicating signs in their windows the other traders will want to apply the measure too," he said.

Doubts about the success of the initiative

Although any reduction in taxes is appreciated by the general public, GRReporter’s research shows that traders and consumers are not convinced of the success of the measure.

"I find the government’s idea very good and the VAT should be reduced. The issue is that this reduction must come along with intensified inspections in restaurants. Otherwise, the traders who have so far concealed income will not only continue to do so but will also have higher undeclared income because turnover could really increase," says Christina, aged 37, who works as an auditor.
  
According to Dimitris, aged 23, who is a final year student at Athens Polytechnic School, the end consumer will not benefit from the VAT reduction. "The reduction has been discussed since the beginning of the year. Many traders may have slightly increased their prices since the winter. This means that if they lower the prices by 5% or 10%, they will reach this winter’s levels and there will not be an actual reduction in their prices. We will pay the same sum again whereas the traders will have a higher profit because they will pay less VAT."

Employees in the sector also doubt that the government plans to increase the budget revenue through the VAT reduction will materialize.

"If a trader is accustomed to not issuing receipts, the reduced VAT rate will not change his habits," says a bartender at an establishment in the centre of Athens who wished to remain anonymous. He also adds that the management of the establishment in which he is working is still considering whether to join the initiative or to continue paying the higher tax rate. The establishment operates as a cafe during the day and a cocktail bar in the evening. The reduced VAT will apply to less than 75% of the items on the menu which means that even if the establishment reduces the VAT on coffee and soft drinks, it will not receive the distinctive sign, showing that the prices of the goods have been reduced. That is why the owners are hesitant as to whether they should become involved in the process of changing the menus and pricing.

On the other hand, the man believes that income concealment is deeply rooted in the majority of the entrepreneurs in Greece. "It is an unwritten rule in Greece that an honest trader is he who conceals less than 15% of his income. We are talking about establishments and restaurants. Imagine that a trader has previously issued 1,000 receipts per year (the figure is indicative and does not meet the actual volumes). If, after the VAT reduction, he presents 1,800 receipts he actually informs the tax authorities that he has been hiding income in previous years. In other words, he himself will reveal that he has been violating the law. Therefore, I believe that the measure could increase turnover and even have a positive impact on pricing, but it will not bring additional revenue to the budget."

The sanctions

The Ministry of Finance is planning to strengthen the controls by introducing much stricter penalties for the offenders. One of them is to close for a week those establishments where the tax authorities have found out that the traders do not issue receipts to all customers. It will become clear early next week whether the punishment for the offenders will take effect.