Greece to increase island VAT

Value-added tax, or sales tax, will rise at six major Aegean Sea tourist destinations this week as new creditor-demanded changes kick in. Planned VAT increases on Greek islands prompted criticism and met with resistance by the junior coalition party, the Independent Greeks, over the summer. However, Prime Minister Alexis Tsipras, newly re-elected, must implement the measure to receive the latest loan package from the European Union and International Monetary Fund, this time around worth 85 billion euros ($95 billion).

"It is clear that this development is a political necessity (and not a choice) that derives from the agreement with the institutions, and is a basic step to proceed with the review and the following steps," Greece's Finance Ministry announced in a statement released late Monday.

Islands previously enjoyed reductions in VAT compared to the mainland, but increased levies will apply from October 1 on Santorini, Mykonos, Rhodes, Naxos, Paros and Skiathos, with the highest tier going from 16 to 23 percent. More islands would enter the new scheme in June 2016 and in 2017.

'Reciprocity'

Island authorities say the measure fails to take into account the geographical handicap of many local communities, connected to the mainland by ferry services that decrease after the tourist season. Even Mykonos, considered one of Greece's wealthiest communities by virtue of its glitzy clientele, has problems when the yachts sail away, its mayor said Monday. Constantinos Koukas told Vima radio that the island of 11,000 had a state health center with just three doctors, and that two of its schools have had to close because of a lack of staff.

"We don't mind taxes going up when there is reciprocity," Constantinos told Vima on Monday.

"Tax evasion is a national sport," he added. "It was not invented on Mykonos."

The Finance Ministry announced that it would review the VAT hikes in 2016 should Greece exceed its revenue targets from tackling tax evasion and that the government would take measures to mitigate the impact of the increases on residents. Ministry officials also said they hoped to talk the foreign lenders into reversing the changes to Greece's economy next year. As demanded by creditors, taxes on a wide range of goods and services rose from 13 percent to 23 percent across the country in July - even as Greece reeled from capital controls in the run-up to and aftermath of the debt negotiations.

mkg/msh (Reuters, AFP, AP)