August 15, 2011

Both Greece and Italy Plan to Raise the Value-added Tax (VAT)

Tax evasion in Greece threatened to take organised form on Thursday when café and restaurant owners refused to pay a 10-point VAT hike, as a deep recession clashes with the government’s increasingly desperate search for revenue. The steep rise in value added tax on the hospitality sector from 13 per cent to 23 per cent is part of a package of fiscal measures agreed in return for the country’s second financial rescue by European Union partners. But for many of Greece’s ubiquitous cafés and souvlaki stands, which have already seen a 20-40 per cent decline in business in the past year as customers rein in spending, the VAT rise is the final straw. - Kerin Hope, Restaurants in Greece refuse to pay VAT rise, FT.com, September 1, 2011

Sources of Tax Revenues in the European Union, 2008 (Excerpt)

Tax Percentage of Total Tax Revenue in the European Union:
  • Value Added Tax........30.0%
  • Income Tax.............27.6%
  • Corporation Tax........10.1%
  • Excise Taxes............9.5%
  • Other Taxes............22.8%
Source: www.eapn.ie/eapn/policy/policy-areas/resources-on-taxation/sources-of-tax-revenue

As shown, the VAT is more than just an additional revenue source in the EU: it is the largest single source of tax revenues there. Thus, one should be skeptical that an EU-style VAT could simply be grafted onto the current US tax code. A VAT of that magnitude would require a major overhaul of the entire tax structure, and, indeed, when the VAT was introduced into Europe that is what happened. Another alternative would be to have a smaller VAT added to the current tax code as a revenue enhancer. A problem with that is that there are major administrative and compliance costs that go along with a VAT, and it may not be worthwhile to incur those major costs in exchange for a smaller flow of revenue.

Looking around the world, VAT rates vary substantially among countries. Iceland has the highest VAT rate at 25.5 percent, while Canada is at the bottom of the list with a VAT rate of 5 percent. Table 2 gives standard VAT rates for various countries. While there is a substantial variation, VAT rates most commonly fall in the 17-25 percent range.

The EU requires members to maintain a standard VAT rate of at least 15 percent.

Denmark, Norway, and Sweden all have 25 percent VAT rates, while the rate in France is 19.6 percent and in Germany is 19 percent. Australia has a 10 percent VAT rate, and Switzerland’s rate is 7.6 percent.

Value Added Tax Rates for Various Countries (Table 2):
  • Australia.............10.0%
  • Austria...............20.0%
  • Belgium...............21.0%
  • Canada.................5.0%
  • China.................17.0%
  • Denmark...............25.0%
  • Finland...............23.0%
  • France................19.6%
  • Germany...............19.0%
  • Iceland...............25.5%
  • Ireland...............21.0%
  • New Zealand...........12.5%
  • Netherlands...........19.0%
  • Norway................25.0%
  • Sweden................25.0%
  • Switzerland............7.6%
  • United Kingdom........17.5%
Source: www.nationmaster.com/graph/tax_val_add_tax_sta_rat-value-added-tax-standard-rate

Italy Eyes VAT Rise in Austerity Package, Impose 'Solidarity Tax' on High Earner, and Hike Retirement Age

August 12, 2011

Reuters - Italy's government plans to raise value added tax, impose a "solidarity tax" on high earners and hike the retirement age for many workers to find 8 billion euros of its deficit cutting plans for 2012, a regional governor said on Friday.

The other 12 billion euros of 20 billion euros of austerity measures to be effective in 2012 will come in equal part from cuts to central government ministries and cuts in funding to local authorities, Roberto Formigoni, head of the Lombardy region, told reporters.

The government aims to bring the budget into balance by 2013 to reassure panicked financial markets about the solidity of Italy's public finances.

Killing Greece: VAT Increase from 13% to 23%!

August 10, 2011

KeepTalkingGreece.com - The two teens on the beach of Petra are pushing their father to go for lunch. “We go when I finish my coffee. That is in one hour” says the father, half laying on a sunbed. For the relaxed daddy, the times he enjoyed relaxed his frappe will be most likely over. By September 1st. When he will have to pay 3,80 euro for a glass of ice-cold frappe. Most possible he will think twice to buy a pizza or even the modest souvlaki.

Then at the beginning of next month their prices will go up due to the VAT increase from 13% to 23%.

Now I can tell you that Greece is a verified absurd country. Amid a catastrophic economic situation for the citizens and businesses on the verge of closing down, the Finance Ministry proceeds to an absolutely illogical increase of the Value Added Tax for business providing catering services. VAT will go up from 13% to 23% for coffee, tea, chocolate, fruit-juices and beverages and all the services of the sector. Pizzas will be more costly, souvlaki as well. Also hotels restaurants will be affected by the new hikes. No to mention food on delivery.

The prices in taverns, restaurants, cafeterias, even cantines will be on fire.

The price for Greeks’ favorite snack, the souvlaki, will go up from 2 euro to 2,20. At least. Then often we have seen that when the VAT increases, the prices are rather rounded upwards, of course. From the hike are excepted bottled water, bread, cookies.

The General Confederation of Small Merchants describe the move as a ‘suicide’ option for this business sector and asks the Ministry to take back the new measure. The sector employs over 600,000 people.

Criticism is strong and nobody seems to understand the logic behind this hike which is expected to hit the tourism industry as well. Competitive Greece with 23%, when in Italy the equivalent VAT is 10%, in Spain, Cyprus and Turkey is 8 percent.

With the new VAT, a lunch at a tavern for four will go up from 70 euro to 76,20. And it come worst. Reading the circular, there is the total confusion because in some areas like hospitals the VAT will be 13% for food items but 23% for beverages. If you buy sweets in a shop you will pay 13%, but if you eat them there you pay 23%/ What will you choose? If you can’t calculate in advance, you may bring your sandwich and cake from home.

The owner of the souvlaki grill near my neighborhood, a family business, was telling me last month that their revenues had dropped by 35% within a year. Now I can’t ask the man — the grill is closed; the family spend their summer vacation in their home town, a village in western Greece. They may never return.

With the new VAT hike, the Finance Ministry has calculated revenues of 300 million euro for 2011, and 700 million euro for 2012 (in.gr ). I don’t know if the Ministry has calculated the consumers’ will to spend this money just for the shake of paying loans interest rates.

Here is what I wrote already in October 6, 2010 about Souvlaki under government attack.

No comments:

Post a Comment