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Lost in 6.5%-18%: Varoufakis’ overhaul of V.A.T system may skyrocket food & utility prices

Greek Finance Minister Yanis Varoufakis said it clearly Monday night on political program on private STAR TV. There will be a flat Value Added Tax of 18% for cash-transactions and a 3% discount – ie. 15% V.A.T. –  for payments with credit or debit card. He assured that “the low V.A.T. of 6.5% will still be valid for food items, medicines, books, newspapers and other print material” provided the payments will be done via non-cash transactions. Otherwise,the VAT for these items will be 9.5%. With the current state of V.A.T. there is hardly any basic food item with 6.5% V.A.T. except bread and pasta.

Varoufakis’ proposal for a rather complicated V.A.T. system will be submitted to the creditors with the aim to tackle Value Added Tax evasion, which is estimated to be €9.5 billion per year.

Big Brother is here

At the same time, the new system will allow tax authorities to follow step by step all purchases done by taxpayers due the online access of tax offices to bank accounts. It will not only give incentives of 3% V.A.T. discount to consumers for the purchase of products and services and force entrepreneurs to accept the “new deal and sell innovation”, it will also enable the tax authorities to check each newspaper, each shampoo and each carrot you buy, then sum the purchases up and check if taxpayers’ tax declaration and income matches to the expenses he/she has done.

This however has not so much to do with people’s tax evasion or not.

It has to do with the unfair tax system of “deemed and fictitious income and taxation” imposed by the Troika in 2012 (or 2011) and according to which the tax office considers that each person needs €3,000 per year to cover his basic needs (food, cleaning material etc.). The person is then been taxed accordingly independently of whether it has an income or not. In fact, this measure is been implemented to people without income, that is Greece’s famous 25% jobless labor craft.

If the person happens to live in own or rented apartment, another €2,000-3,000 are being added and the jobless has to be tax for the €5,000-6,000 income he does not have.

Furthermore, with this measure it will be time for the Greeks to say Goodbye to privacy of their purchases and dirty little habits.

New V.A.T: price increases and decreases

The new V.A.T. system is expected to lead to price decreases in fuel, alcohol beverages, tobacco, clothes, shoes, electric appliances, furniture, telephone cost, vehicles, detergents,  jewelry and other products, services and commodities currently with 23% V.A.T.

Basic needs to skyrocket

However the new system will negatively affect basic needs items like utilities and food.

V.A.T. in water and electricity bills will rise from 13% currently to 15% but there will be no extra charge for utility subscribers. “V.A.T. in electricity will be at 15% but  there will be no extra charge of 3% for cash payments, because the PPC (DEH) does not do tax evasion,” Varoufakis said Monday night.

Of great concern is the issue of the new V.A.T, in food items with their prices at risk of skyrocketing should the current V.A.T of 13% rise to 15%. Basic food items like milk, butter, cheese, sugar, eggs, meat, poultry, fish, vegetables and whatever comes on the Greek table may cost an extra euro per item for the consumer.

Examples

One kilo of Feta cheese will rise from €7.96 (13%) to €8.10 (15%) or €8.30 (18%)

One liter of Olive Oil will rise from €5.80 (13%) to €5.90 (15%) or €6.10 (18%)

Going through my super market receipts and roughly calculating the new V.A.T. charges, the family’s basket would be charged with additional 10 euro per week.

According to some unverified media reports, the V.A.T. for food items would be decreased down to 6.5% for non-cash and 9.5% for cash payments.

Certain is the price increase in public transport tickets and taxi fares, private clinics, flowers purchases, just to mention a few.

Tourism reacts angrily

The new V.A.T. system will affect the tourism industry due to rises in hotel and restaurant services and the change of V.A.T. reduced rates in Greek islands.

Andreas Andreadis, president of the Association of Greek Tourism Enterprises (SETE) strongly criticized the upcoming V.A.T. increases of “120% in the Tourism industry” and warned of  “unrepairable damage” and danger that “Greece will be out of competitiveness” in the area.

“More than 200,000 work places will be destroyed as of next year, if the measure will be implemented” Andreadis said. Speaking to Bloomberg last week, Andreadis  complained:

“The VAT on tourism has changed six times in the last six years and you cannot make a 10-year plan with this sort of problem.It’s important to find a balance in the finances of the state, but how can you find a balance if you kill the investment climate?”

Practical problems with the new V.A.T. system

The very first question that jumps in mind is: Will the product prices be in two versions with 15% and 18% V.A.T. or will consumers have to go shopping with a small calculator at hand?

Other practical questions are at hand too:

1. Will there be restaurant price lists in two versions too? Like one for cash-payments, one for credit/debit cards?

2. How will the many elderly get used to leave some money on their pension bank accounts so that they pay with credit/debit card in supermarket, in kiosk and in the pharmacy in order to get advantage of the 3% discount?

3. Will we have to pay €0.50 for a bundle of Parsley here and €1.20 for two kilo tomatoes there with debit/credit card at the open market (Laiki) so that our weekly groceries shopping will not exheed our tight budget?

4. Will there be a price decrease to all products with new lower V.A.T. or the entrepreneurs will simply cash more profit?

5. How will all these consumers with red debts to the banks or the state acquire a credit card? How will they secure that the bank and the state will not grab their money form the debit card?

6. What will happen to all these jobless and impoverished who cannot open a simple bank account?

7. Will the businessmen transfer the cost of keeping a credit/debit card machine and the extra bank fees to the price of the products?

8. How will the Greek Finance Ministry tackle V.A.T. evasion when customer and businessman agree among themselves that no receipt will be issued and the price will be with 15% VAT? Which means, the continuation of the common tax evading practice in Greece.

+/- = 0

“Except for state revenues of estimated one billion euro from scrapping the special V.A.T. status on the islands, the measure will have zero fiscal result,” notes economic newspaper Capital.gr.

The newspaper might be right: decreasing V.A.T. here and increasing it there the result might be +/- zero.

The measure is expected to be implemented as of 1. October 2015, once the Lenders’ Institutions give the green light.

In the meantime, I see all Greeks rushing to get armed with credit and debit cards with the money they don’t have, while businessmen will have to overhaul their cash register system.

PS This is much too much “creative ambiguity” for my taste and I advice Varoufakis to reconsider the plan. Make my life more simple and less complicated.

V.A.T sources: here and here

Image result for lost in VAT

Big brother behind every purchase with VAT

 

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9 comments

  1. An economist with game experience launches a plan. Not considering the work for the merchants and results for the Greek populations purses, investment climate, tourist climates. Result: you can buy less for more money. Less income for all merchants and other business.
    Yes, the Greek government has a real scientist but not a well thinking financial person as financial minister.
    And still no reforms for pensions, labor markets and a better investment climate.
    The Greek government is pinching from the poor and give the money to civil servants and pensioners.

    • keeptalkinggreece

      ‘reforms’ mean ‘cuts’. all right?

      • Right. Cuts until government expenses and tax revenue generation are aligned.

        And better stop dreaming about EU funding.

        The rest of the Eurozone has enough of the agressive demands of hooligan radicals.

        Back to the Drachme and to the wealth levels Greece ‘enjoyed’ before the Euro.

        The money is better invested in some Greece’s neighbouring countries.

        The Greek voter will have decades of austerity to be grateful to Syriza. – Come on, stop the ‘humanitarian crisis’ whining and show some pride!

      • In proper economic-speak, reforms do not mean cuts. But in the far right world that northern European politicians (and much of the population) occupies, it is newspeak for cuts. Moreover, the OECD has shown clearly that Greece carried out a very large number of “reforms” demanded by the Troika, yet still the Germans and others whine about no reforms. In reality, few useful reforms have been made in Greece, and massive damage has been done to both Greek citizens and the Greek economy by the selfish attitude of northern Europe. All they were ever interested in was getting their money back, never in helping Greeks.

        • keeptalkinggreece

          constructive reforms would be to overhaul the public administration system, but we deal with destructive reforms.

  2. Illogical, unfair, inefficient and overly complicated. Welcome to Greece 😉

    -fx

  3. Welcome to the future, in about 10 years there will be no cash anymore.
    So we will be to the Basics again.
    I repaire your washingmachine, you give me olives, tomatoes and a bottle wine