One of the most important sources of revenue for the Greek State is value added tax (VAT), as it is something we all pay for, every time we buy a product or service. But a new study by KEPE examining exactly how income of the VAT state, it shows that things are more complex than they seem.
According to the study, GDP increase is not automatically and proportionally translated into an increase in VAT revenue. In other words, when the economy goes up, VAT does not go up to the same degree.
On the contrary, the cleanest index associated with VAT revenue is private consumption. The more they spend the households, the more revenue for the state from VAT, making this relationship much more stable and predictable.
However, one of the most critical findings of the study concerns increased VAT rates, which are often used as an “easy solution” to boost revenue. As it is revealed, the increase in VAT rates does not guarantee the increase in revenue.
Businesses often do not pass the costs to consumers completely, fearing demand, or consumers limit their markets, so private consumption indicators are receding. The result is that the expectations of the state for more revenue will not be verified.
At the same time, the structure of Greek VAT itself has significant “gaps”. A number of products and services are subject to reduced rates or completely exempt.
This results in the Policy Gap (that is, the difference between potential and real revenue due to political choices) reaching 56.3%, one of the highest in the European Union. Of this, 42% are due to exemptions and 14.3% to reduced rates.
If tax evasion is taken into account, the final conclusion is even more alarming: only 37.5% of theoretical VAT collection finally reaches the state funds. The rest is lost either for institutional exceptions or due to abusive behavior.
It is noted, however, that they have become significant in this direction, as the generalization of POS, mydata application and electronic invoices have boosted control. However, the study points out that the real impact of these measures on VAT revenue has not yet been systematically measured.