Comparative study on indirect taxation in EU. The case of reduced VAT rates in Aegean islands.

Comparative study on indirect taxation in EU. The case of reduced VAT rates in Aegean islands.

The scope of this interim report is the indirect taxation in the European Union and in particular, the special VAT regime in island regions. It was prepared on request by Mr. Demetrios Gakis (former President of the Special Parliamentary Committee on “Financial Statement and the General Balance Sheet of the State and on the Control of the Implementation of the State Budget”) on June 17, 2015. Authors of the report are the members of the Office Michael Stavrakas, Alexandros Lyras and Konstantinos Pagonis.

The abolition of the special VAT regime (30% reduced rates) on the Aegean Islands was one of the main measures to increase tax revenue in the context of the third Memorandum. The issue is not a new one. A research by the Institute for Economic and Tax Studies in January 2013 had estimated that the increase in revenue due to the abolition of reduced VAT rates on all Aegean islands would add approximately € 69 mn. or 0.5% of the total estimated revenue of 2013, assuming that the behavior of households and businesses does not change and that tax evasion does not increase due to the higher rates. However, in a realistic approach these issues should be taken into serious account. An older report by the IMF for the first Memorandum, estimated that in 2010 the fiscal gain due to the abolition of the special VAT regime on the Aegean Islands would be € 130 mn. At the same time, the Ministry of Finance had estimated that gain at € 250 mn. Taking into consideration that our country’s GDP in 2015 is projected to be about 22% smaller than the country’s GDP in 2010 (€ 226.03 bn. against € 175.66 bn. according to ELSTAT and the Draft Budget for 2016), the maximum fiscal gain cannot exceed € 195 mn. The PBO asserts that the fiscal gain from the abolition of the special VAT regime on the Greek Islands is disproportionate compared to the inconveniences that will be caused. Besides, we must not ignore that special VAT regimes for specific regions or specific commodities exist in other European countries as well (Denmark, Germany, Spain, France, Italy, Cyprus, Austria, Portugal, Finland, Sweden, Ireland, Belgium and the United Kingdom).

With the current report we hope that we can contribute better to the workings of the competent Parliamentary Committees and inform the Hellenic Parliament and the Greek citizens.

The Coordinator of the Office

Professor Panagiotis Liargovas