Finance Minister Yanis Varoufakis managed to not only anger foreigners but also his own Radical Left Coalition (SYRIZA) government with proposals for a two-speed Value Added Tax. He clearly said, during an interview with private STAR TV on Monday, that there would be a flat VAT of 18% for cash transactions and 3% discount for payments with credit or debit cards though he gave assurances that there would still be a low VAT of 6.5% for basic food items, medicines, books, newspapers and other print materials.
His proposal for a rather complicated VAT system to combat evasion estimated at 9.5 billion euros per annum was not followed by an official announcement or a non paper. Only Varoufakis followed up on his interview with a tweet on Tuesday night condemning the “internal Troika” for rejecting his proposals while clarifying that he would discuss these ideas with the Brussels Group on Wednesday and Thursday.
New scenarios for VAT
The proposals for Varoufakis are judged as being inapplicable as a number of technical issues would arise if they were to be implemented. Already, new scenarios are being considered, such as the retention of VAT contributions worth 7.5% for medicine, food and books, 15% for Public utilities, hotels, tickets, etc. and 21-22% for products and services currently charged 23%. There would be no exemptions for card users, but there would be 30% returns for those who live on islands.
The government has decided to break through its “creative vagueness” and present its first simple and noteworthy tax reform announced officially by the Finance Minister beyond “pay-what-you-can”-styled regulations or the retention of memorandum-imposed measures of the previous conservative government such as the single property tax (ENFIA).
Varoufakis’ fiasco with the double VAT:
* he revealed his ignorance for basic sizes and rules when chartering finance policy without consulting with the Ministry of Finance’s services as VAT is covered by Community Law and he introduced VAT discrimination based on the way of payment.
* the 3% tax return incentive for the use of card payments is being blighted as it had at the outset been presented as an atlernative of expenditure with cards instead of cash instead of a separate VAT provision for card transactions.
* the host of exceptions would open a “hole” in the budget worth over 5 billion euros! Rates worth 6.5%-18% for basic goods would automatically transfer a number of products to the lower VAT with the weighted average rate descending to 12% rather than the 17% platform that applies today yielding 14.5 billion euros.
* a new mechanism would need to be created for the 30% return of VAT on the islands of the Aegean at a time when there is no VAT and the special fuel tax.
* all the newspaper reports that Varoufakis had accused of being “yellow rag” journalism have been confirmed fully with measures such as the preservation of ENFIA, an increased special levy tax and tax for the 500 richest. These are measures that Varoufakis had disagreed with in the past.
