The discussion about reducing value-added tax and indirect taxes in general often returns to the public debate on how households might be relieved of the burden of inflation. However, the reality is more complex. 

On the one hand, a horizontal reduction in indirect taxes would generate significant fiscal costs, as this is the main source of tax revenue for the Greek state. On the other hand, international experience shows that VAT cuts are no longer easily and fully transferred to final prices, since part of the benefit is absorbed by the supply chain or businesses. Therefore, the fiscal cost may be certain, without a proportional benefit for consumers.

This situation, as Finance Ministry officials note, did not arise by chance. For years, extensive tax evasion, mainly by professionals and businesses, limited the effectiveness of direct taxation. Gradually, the tax burden has shifted toward consumption, as indirect taxes are easier to collect and constitute a more stable source of revenue. Therefore, governments mainly choose reductions in direct taxation, while interventions in VAT and other consumption taxes remain limited.

At the same time, recent tax interventions have been designed mainly around reductions in direct taxation, such as social security contributions and income tax, and not in indirect taxes, precisely because the latter constitute the main source of public revenue.

The contrast with most European economies is obvious. In most European Union countries, states draw a larger part of their tax revenue from direct taxation of income and profits and a smaller part from consumption. In Greece, the opposite is true, so that the tax burden is transferred more to households through their daily expenses, burdening low- and middle-income households more.

According to European Commission data, in 2024 (latest available figures) indirect taxes in Greece amounted to 17.1% of GDP, while direct taxes to 11.3% of GDP. The ratio is €1.51 from indirect taxes for every €1 from direct taxes.

Source: Ekathimerini.com