Value-added tax, or VAT, remains one of the most important and most debated pillars of Greece’s tax system. While recent efforts to combat tax evasion have narrowed the so-called VAT gap, total VAT revenues still fall short compared with most other European countries, highlighting deeper structural issues in how the tax is designed and applied.

According to the latest quarterly report by Foundation of Economic and Industrial Research (IOBE), revenue losses are driven primarily by policy choices that narrow the VAT base or reduce the tax due.

Progress on compliance, but revenues still lag

IOBE notes significant progress in VAT compliance in recent years. The VAT gap, namely the difference between expected VAT revenues and what is actually collected, narrowed by 12.6% in 2023 compared with 2019. This marks the largest improvement recorded among EU member states over that period.

The reduction has helped ease the unfair distribution of the tax burden and curb distortions in competition between businesses. A key factor behind the improvement has been the expansion of electronic payments and e-commerce. Online sales rose from 3.8% of total business sales in 2018 to 6.9% in 2022, reducing cash transactions and making VAT collection easier to monitor and enforce.

Yet despite this progress, overall VAT revenues in Greece remain weaker than in much of Europe.

Exemptions and reduced rates shrink the VAT base

IOBE points to the extensive use of exemptions and reduced VAT rates as a major source of lost revenue. Such measures are often introduced to provide targeted social support, for example in remote or border regions, or to encourage consumption of specific goods, such as books. However, these policies come at a clear fiscal cost.

As the report notes, revenue underperformance reflects both remaining compliance gaps and the large number of exemptions that reduce actual VAT intake compared with what could be collected under a broader tax base.

How high is Greece’s VAT?

Greece applies a standard VAT rate of 24% and a reduced rate of 13%, placing it seventh-highest in Europe according to research published by the Tax Foundation, a US based think tank . However, focusing on rates alone does not tell the full story. What matters just as much is which goods and services qualify for reduced or super-reduced rates.

In Greece, the super-reduced 6% VAT rate applies to a relatively narrow list: printed and digital books, magazines and newspapers; tickets for theaters, concerts and cinemas; pharmaceuticals and medical devices for human use; electricity and natural gas; hygiene and protective products such as masks, gloves and antiseptics; and the import or transfer of works of art and collectibles. Notably absent from this list are basic food items.

How Greece compares with the rest of Europe

Across the European Union, VAT systems vary widely. Hungary applies the highest standard rate at 27%, followed by Finland at 25.5%, and Croatia, Denmark and Sweden at 25%. At the other end of the scale, Luxembourg has the lowest standard VAT rate at 17%, followed by Malta at 18%, and Cyprus and Germany at 19%.

The report notes that “the EU’s average standard VAT rate is 21.9 percent, nearly seven percentage points higher than the minimum standard VAT rate required by EU regulation.” Among major European countries outside the EU, only Switzerland applies a standard VAT rate below the EU minimum, at 8.1%.

VAT changes across Europe, and how Greece fares

Many European countries have adjusted their VAT systems over the past year. Austria plans to zero-rate certain hygiene products from 2026. Estonia raised its standard VAT rate from 22% to 24% in July 2025. Germany will move restaurant food from the standard 19% rate to a reduced 7% rate starting in 2026.

Greece, for its part, extended the 30% VAT reduction across all rates to more islands, continuing a long-standing policy aimed at supporting island economies. Elsewhere, Lithuania broadened its VAT base by shifting some goods from a 9% reduced rate to 12%, reversing earlier policy changes. The Netherlands moved accommodation services from a reduced 9% rate to the standard 21%. Finland lowered its reduced rate slightly to 13.5%, widening the gap with its high standard rate, while Romania raised its standard VAT rate to 21% in August 2025 and merged its lower reduced rates into a single 11% tier.

Source: ot.gr , Tax Foundation