Greek property tax cut will feed shadow economy, says EU

Greek property tax cut will feed shadow economy, says EU

A decision by Greece to suspend VAT on new buildings is likely to increase the country's large shadow economy and may not be in line with EU law, according to the European Commission.

Greece announced recently that it will freeze the 24 percent VAT paid on new buildings with construction permits issued as of 2006 to help the market absorb high supply levels and rebound from the country's economic crisis. Some estimates place the number of new, or nearly new buildings, to be affected by the tax benefit at more than 100,000.

In its Enhanced Surveillance Report on Greece, the EU pointed out that member states are not able to suspend payments of VAT through the whole supply chain. "The European institutions encouraged the authorities to develop alternative measures to address the problems encountered by the building sector in Greece and take measures to tackle the shadow economy," says the report.

Although Greece's international creditors have not given the tax cut the green light, it has been included a tax reforms bill the government is putting its finishing touches on.

The news has already had a positive impact on the sector, with the latest data showing that private building activity in August jumped 28 percent, on the back of strong growth in the broader Athens area and Western Macedonia, northern Greece.

In the report, the EU forecast that the Greek economy would expand at an annual pace of 2.3 percent in 2020, slower than the Greek government's 2.8 percent growth target for the year.


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