Cabinet approves VAT reduction from 5 to 3 per cent for selected items and services

The cabinet on Thursday green-lit changes to the legislation governing Value Added Tax (VAT) cutting the applicable 5 per cent rate down to 3 per cent on certain items and services, as part of targeted measures to help specific groups of people.

The proposed amendment to the VAT law will be tabled to parliament.

Under the changes, a 3 per cent instead of 5 per cent rate will apply to fees for theatrical and musical performances, and to waste collection and waste processing services – except those provided by state authorities or local government.

The VAT reduction will also apply to a number of items used by persons with disabilities. These include mechanical lifting devices, wheelchairs, orthopaedic appliances, trusses, dressings and splints.

Other items used by blind and deaf people – such as special typewriters – will be subject to zero VAT.

According to the government, the reduced receipts from these VAT reductions will entail a small fiscal hit of €3.5 million annually.

The announcement was made by government spokesman Constantinos Letymbiotis, coming out of the cabinet meeting.

Letymbiotis was also asked about the impending expiry of current subsidies on fuel products, expected to lead to increased energy costs.

The subsidies will expire at the end of the month.

The spokesman refused to be drawn on whether the government might decide to extend the support measure.

“We will be making announcements shortly,” he said.

It was unfortunate that the issue has turned political, he added. For the government, the issue is one of “social sensitivity and fiscal responsibility.”

Letymbiotis recalled that the fuel subsidies – introduced by the previous administration – were intended as a temporary, not permanent, measures.

Earlier, a finance ministry official said the relief measures are no longer justified, since fuel prices have dropped to below March 2022 levels.

The inflation control measures — a freeze of VAT on motor fuels and electricity – were initially introduced in July 2022 through to the end of the year with two extensions, in September 2022 and April 2023.

The government is understood to be gearing up to do away with the tax reduction; critics have called for another extension.

Based on today’s fuel prices, and if indeed the government decides to discontinue the relief measures, the average price of 95 octane unleaded petrol and diesel, would rise from the current €1.38 per litre to € 1.46 cents per litre.