It is expected that in the pre-election period of this year the “dilemma of indirect taxes” will rise sharply: “to reduce rates after the elections or not.” The prime minister left the option open after the election in an interview he gave last week, while the official opposition pushes for a proposal to cut both VAT and energy excise taxes. So… the computers have already been handed over to two employees.

The stakes are very high: more than 40% of the country’s total tax revenue comes from indirect taxation (at least 10 points above the EU average), and the ratio in terms of GDP exceeds 17%, while the European average is 13%.

In many areas – fuel, food, heating oil, etc. – Greece has one of the highest VAT and consumption tax rates in the world, while the Greek “patent” is a phenomenon of indirect taxation of indirect tax (for example, for lead). -free VAT is also calculated on excises, as well as on mobile communications, all types of motor fuel, heating oil, etc.). Excellent collection performance, large and financial cost to reduce rates on an ongoing basis.

The financial headquarters has already calculated that in order to reduce the base VAT rate by one unit (from 24% to 23% and from 13% to 12%), more than 1.3 billion euros of budget space is required. The “targeted” shift of the main categories of food from a low rate of 13% to an ultra-low rate of 6% entails additional budget expenditures. Each basic category (e.g. dairy, meat, etc.) requires 150-200 million euros, depending on the volume of consumption. Thus, the burning question is whether any available fiscal space should be made available to reduce indirect tax rates, or whether other options should be pursued.

There are two conflicting “schools of thought”. The first defends high rates of indirect taxation with the following arguments:

More than 40% of the country’s total tax revenue comes from indirect taxation.

1. Unlike direct taxes, indirect taxes place a burden not only on permanent residents of the country, but also on visiting foreign citizens, who, after the tourist boom, now amount to tens of millions annually. Well, the VAT rate cut also uses fiscal space to subsidize tourists.

2. In a country where tax evasion is widespread, such as Greece, a consumption tax is a way to “capture” black income, at least while it is being consumed. Especially by stimulating online payments, the result can be even better. Already now, due to the pandemic, the volume of electronic payments has exceeded 60 billion euros per year, and this has been reflected in VAT revenues. 2022 ended with only €21.4bn in VAT collections from €17.4bn in 2021.

The counter-argument, of course, stems from the main characteristic of indirect taxation: the adoption of horizontal rates that fall equally on low and high incomes, which seems to work in a reverse redistributive mode, since the recipient of high incomes ends up paying a much lower percentage. his salary (or his monthly earnings) to purchase the same product. The problem becomes much more acute in essentials such as food. Thus, lowering indirect tax rates can help the poorest households if the benefit “passes” to the retail price and is not lost at different stages of pricing (from manufacturer or wholesaler to retailer and from the latter to the retailer). end-user). At the fiscal level, the next government will have to cope with the “headache” from the first weeks of the new administration: in June, the period for applying reduced VAT rates on a number of basic services, such as transport tickets, coffee, etc. To extend the measure for another six months and cover the whole of 2023, a budget space of 250 million euros is required, and an additional 500 million euros is needed to include this measure in the budget for 2024. If the measure is not extended, then in an environment of precision and high inflation (as revaluations continue into 2023), we will see a new wave of revaluations from the second half of the year. This is also the problem of temporary measures in indirect taxation: they are easy to accept, but difficult to abolish.

The basic VAT rate in Greece (24%) is the third highest among OECD member countries. In the list of dozens of countries, Hungary tops with 27%, followed by Norway, Denmark and Sweden with 25%, while Finland has 24% along with Greece and Iceland. In an environment of high inflation, it was high levels that led to a sharp increase in tax revenues, well above forecasts made at the beginning of 2022.