By: Karagounis & Partners
Law 4334/2015 was voted on 15th July by the Greek Parliament in line with the Euro summit of 12th July 2015 providing policy commitments in the form of urgent regulation regarding tax issues and particularly VAT increase in several services and commodities in Greece, upfront measures to improve long-term sustainability of the pension system as part of a comprehensive pension reform programme as well as legal provisions relevant to the Statistic system (ELSTAT). Here below follows a brief analysis of the legislation introduced regarding the first two (tax and pension) issues.
1. The streamlining of the VAT system and the broadening of the tax base to increase revenue
Law 4334/2015 unifies the rates at:
- a standard 23 percent rate, which will include restaurants and catering,
- a reduced 13 percent rate for basic food, energy, hotels, and water (excluding sewage) and
- a super-reduced rate of 6 percent for pharmaceuticals, books, and theatre, and now also for newspapers and magazines.
The legislation eliminates the VAT discounts for islands, starting in October 2015 with the islands with higher incomes and which are the most popular tourist destinations. Regarding the discounts for most-remote islands by end-2016, the legal drafting on the latter point needs to be clarified to indicate that the full elimination of the discount takes place by that date. The new VAT rate on hotels will also be implemented from October 2015. VAT exemptions have been removed on fees of tutoring entities (frontistiria) of all educational levels and of foreign language and computer schools. The overall package will deliver a significant revenue gain approaching 1 percent of GDP on an annual basis.
The authorities have also taken a set of other measures to increase revenues. This includes an increase in corporate tax to 29%, an increase in income tax pre-payments, an increase in insurance taxes and an increase in luxury taxes with a broader base.
2. Pension System - amendments (part one - sequel with follow with upcoming regulation.)
Law 4334/2015 article 1 paragraphs 27-32 contains the following measures on pensions, while their coverage remains to be clarified and addressed if necessary:
- The granting of guaranteed contributory pension to those retiring after 30 June 2015 only at the attainment of the statutory normal retirement age of currently 67 years as;
- The increase of health contributions for pensioners to 6% and the collection of health contributions also to be applicable for supplementary pensions as from 1st July 2015.
- The integration into ETEA (Ενιαίο Ταμείο Επικουρικής Ασφάλισης) of all supplementary pension funds as of 1st August 2015 and ensuring that starting from that date all supplementary pension funds are only financed by own contributions;
- Restating that the 2010 pension reform is to be applied and some of the existing rights be removed. While this restatement in primary legislation is welcome, secondary legislation that ensures implementation of the law is still needed.
Significant further legislative action to ensure the sustainability of the pension system has to be taken urgently in the coming weeks in consultation and agreement with the institutions (e.g. early retirement, harmonization of contribution rules across funds).
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