Greece’s VAT changes spark confusion, jokes

ATHENS, Greece — Value-added taxes on certain items and services in Greece went up on Monday from 13 percent to 23 percent, prompting confusion with shoppers and shopkeepers alike.

Restaurants, household services, taxis and ferry tickets, among other things, all now carry the higher tax rate. But when it comes to food, the new rules have people scratching their heads.

Fresh baked bread still carries the 13 percent tax, but add raisins, and it’ll cost an additional 10 percent. Olive oil, a staple in Greece, means only the extra 13 percent, but canola or corn oil is taxed at 23 percent, as are vinegar and spices. Pork and lamb stays the same at 13 percent, but beef — even ground meat mixtures with beef in them — goes up to 23 percent. Fresh cheese maintains the 13 percent tax, but packaged cheese slices get the 23 percent tax. 

Even basics like souvlaki have been affected. Under the new rules, a plain kebab without any embellishments carries the 13 percent rate, but anything with extras like peppers, onions, tzatziki (a garlic-yogurt sauce) and even salt now requires the additional 10 percent tax. 

“If we add salt, we’ll have to charge more. How can anyone eat a souvlaki without salt, for Christ’s sake?” said Panayiotis Litinias, 33, a waiter at Spitiko, a souvlaki and gyro restaurant on the border of Ilisia and Zographou, two neighborhoods in central Athens.

The new rules have even become the butt of jokes. One wry classified ad circulated that read, “Butcher seeking economist with a master’s in microeconomics to set prices for kebabs and ground meats. Former economic ministers accepted.”

Last Wednesday, Greece, already sagging from a more than $300 billion debt load and on the verge of economic collapse, reached a new deal to continue talks for a third bailout with its eurozone partners and Greece’s creditors — the International Monetary Fund, the European Commission and the European Central Bank. To secure the bailout, the government agreed to implement a series of economic reforms, including increasing consumption and corporate taxes, imposing budget cuts and implementing changes in the pension system. The changes in the value-added taxes, or VAT, are part of that agreement.

The new taxes reared their heads on Monday, the same day that Greek banks opened after being shuttered for three weeks. After the Greek government called for a referendum and talks over Greece’s bailout terms stalled in Brussels, the banking system shut down, and capital controls were imposed on June 29, paralyzing the country’s economy and allowing Greeks to take out only 60 euros a day in cash (about $65). With the banks reopened, Greeks can now deposit checks and access safe deposit boxes, but they are still restricted in the amount of cash they may withdraw; the daily cap has been replaced by a weekly limit of 420 euros. 

Walking out of a local supermarket, one woman carrying two plastic bags of groceries in each hand said she really could not tell if things cost all that much more yet. “It’ll show up in the weeks to come,” she said.

Up the street at a local butcher shop, Roula Papandreou, 53, went in to buy 2 kilos (about 4.4 pounds) of sliced beef for an elderly neighbor. When she heard the tax rate for beef went up to 23 percent, she seemed stunned. “Po-po [wow]!” she said, throwing her hands up in the air. “But what are we supposed to do? It’s not the end of the world. We’ll change our ways, not buy some things anymore. I guess I don’t have to buy beef. But it does irritate me. I accept the idea of increasing the VAT on unnecessary items like potato chips and cheese puffs, but beef?” Her purchase was 22.80 euros.

The butcher, Apostolis Papayiannis, said he wasn’t charging customers the extra tax yet, opting instead to absorb the cost to attract business. But he is worried that he won’t be able to do that indefinitely. 

“I paid 70 cents more a kilo for my beef this morning, but I did not pass on the cost to my customers,” he said. “Add it up, though. If I lose 30 cents per kilo and I sell 300 kilos of beef, that’s a lot of money lost, out of my pocket.”

Papayiannis isn’t the only one thinking that way. The Choriatiko bakery a couple of blocks away did not raise the prices on its breads and baked goods either. “Everything stays the same,” said a saleswoman behind the counter, who did not give her name because she did not have her boss’ approval to comment. “We don’t want our customers to be confused.”

The new taxes have spurred a wave of old-fashioned marketing, with many retailers across the country heavily promoting discounts and sales. Nearly every shop window advertises items at up to 60 percent less than the ticketed price. Poking fun at the demands of Greece’s creditors, one appliance retailer, Electroniki, splashed huge banners on its storefronts and launched TV campaigns, advertising, “Autocratic sales!” on all its products. 

Value-added taxes aren’t new to Greece, of course. The Economic Ministry reports that so far this year, the taxes added 13.6 billion euros to the government’s coffers and estimates that the increases will raise an additional 750 million euros in revenue this year. Next year the changes are expected to produce 16 billion euros in revenue.

VAT, invented in 1954 by a French tax expert, works like this: The government collects the tax, in stages, as a product moves through an economy. In producing bread, for example, the farmer who grows the wheat, the miller who turns it into flour and the baker who makes the bread and everyone on the supply chain in between adds the tax to the price of their product and receives an invoice that is filed with tax collectors. If it all works smoothly, each buyer gets a refund for the tax paid by the previous person in the chain. The government, of course, gets the tax paid for the increase in price — the value added — at each step of the process.

Nevertheless, the extra cost means more out of everyone’s already squeezed budget. According to an analysis published on MacroPolis, an economic news site, the changes will cost households 650 more euros annually.

Some Greeks are skeptical the sacrifice will help the country get out of its economic hole. Theodorous Anastasiou, 50, a tavern owner in the neighborhood of Goudi, said, “How can making consumers pay more produce economic growth? It is going to have the opposite effect. People are fed up. It’s not the VAT’s fault. No one has money. At some point, everything is going to go boom, and it is not going to be pretty, I can tell you that.”