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Tax shock for Greek Islands

- by Andy Cornish

Abolishing tax relief on the Greek islands appears to have backfired with VAT revenues from tourism dropping by 40% in just five months, according to some reports.

Holiday visitors to the Greek Islands used to enjoy lower prices thanks to low VAT rates for many businesses, notably hotels and restaurants.

The low VAT rate was allowed in order to compensate for the extra costs of shipping in goods such as food, drinks and other consumables out to the islands.

But the Greek government abolished the relief on Mykonos, Santorini, Paros, Corfu, Zante and Kefalonia in June last year and have recently rolled out the VAT rise across another dozen Greek islands.

VAT relief was abolished to raise more cash to help pay off Greece's international debts. But latest figures show holiday island VAT revenues dropping 40% in five months and analysts warn it will get even worse.

Government finance officials blame island traders for the shortfall in VAT revenues and attribute the drop to deliberate tax evasion as Greeks turn to a cash only economy and fail to issue receipts.

Greek island holidaymakers are unknowingly colluding with the tax evasion by opting for cut-price hotel deals and cheaper meals in restaurants.

Some say the situation was made worse after steep fines for evasion were scrapped at the same time that the VAT relief was cut.

Greek officials speak of a disorganised tax monitoring mechanism on the islands and of widespread tax avoidance.

Mykonos appears to be the worst for tax evasion, with VAT revenues 62% lower than expected this year. But it's much the same on the other popular tourist destinations of Santorini, Paros, Rhodes, Kos and Zante which all have shortfalls of around 40%.

The trend is particularly worrying for Greece in the wake of the British Brexit vote. The big fall in the value of sterling is expected to trigger a drop in tourist arrivals and a further drop in revenues.

The effects of Brexit may not be felt this year as many have already booked their Greek Island holidays but European holidays for 2017 are almost certain to be more expensive.