Creditors oppose reduced VAT on education

The government’s plan to impose two reduced value-added tax rates on private education services with immediate effect has run into the opposition of the country’s creditors, whose mission chiefs rejected the idea during the meetings that took place this week in Athens.

Sources say that the creditors expressed objections to the Education Ministry’s intention to impose VAT of 6 percent on tutoring schools, known as “frontistiria,” and 13 percent on private schools, given that the European Directive on VAT does not provide for reduced rates on education.

In practice, this means that the directive allows European Union governments either to impose no VAT on private education or to apply the full VAT rate, which in Greece stands at 23 percent, should they choose to include the private education among VAT-burdened goods and services.

A top Finance Ministry official admitted on Friday that the issue of VAT on education will have to be discussed further with the creditors.

This development has created a new stumbling block for the government, which will now have to decide whether to impose a blanket 23 percent rate on all enterprises that offer education services or go back to the drawing board to find offsetting measures amounting to over 300 million euros.

Worse, the extension granted to the temporary non-application of VAT on private education services expired yesterday, without any further information from the government. This will create additional woes for the sector’s companies, as they still do not know whether they should issue receipts with VAT or not.

The problem is even greater considering that the government will have to issue its definitive verdict next week, as finding new measures to offset the loss from abandoning the 23 percent VAT rate on education constitutes a prior action required for the disbursement of the subtranche of 2 billion euros.