Education, education, education and VAT

Nikos Filis is the minister of education. He is famous for responding to suggestions that VAT ought to be increased in pasta by asking 'who eats pasta anyway?'

Nikos Filis is the minister of education. He is famous for responding to suggestions that VAT ought to be increased for pasta by asking ‘who eats pasta anyway?’

In my previous post I discussed the insanity of having varied rates of tax for similar products and services and complicate this with a series of exemptions based on geography. The ‘best government of all time’ has built on this ‘success’ by adding another layer of tax increases in its usual unorthodox way, this time on education.

Before the September election, the ‘First Time Left’ government of Mr Tsipras announced the inclusion of education services in the VAT regime with a charge of 23%. VAT, on education, at 23%, think about it for a second.

What counts as private education in Greece? Due to the deficiencies of the public sector everyone, and I mean EVERYONE has to subsidise their kids education by paying for private add-ons. People pay for private tutors to help with math and grammar, pay for private schools for English and French, pay for tutors and/or after school classes to prepare for the university entrance exam. You have to, if you do  not, your kid will not know any foreign languages and will be accepted to study at the fish breeding academy in Igoumenitsa. Those with money also pay for piano lessons and ballet.

Parents with slightly higher incomes, or unlucky to be far from an operational public school have to pay for a private school so they avoid all the add-ons. People who do not live next to the grandparents have to pay for a lot of after school activities to allow them to finish work before picking up their kids.

This is the rich class which Mr Tsipras wanted to tax. This is the group of the population that does not vote for Syriza as a Minister said this week. Nice, considering that Tsipras himself sends his kids to a private school. Nice also considering that once a party is elected in power it usually pretends to represent the whole country, not just its voters.

Lets break this down for clarity. If you are playing 10 Euros per hour for your kid to study English in a Greek private establishment for say 4 hours a week (40 Euros) for 35 weeks in the year ( 1400 Euro). This is an additional 322 Euros in the year. In these conditions, this is not easy to bear. The ‘private establishment’ is usually a tiny ‘school’ run by a couple of people in a flat, with classes of 10-15 kids. Hardly capitalist excess.

This proposed increase was not mandated by the evil Troika, it was a gimmick by Tsipras right before the election to show how tough he will be on the ‘rich’. After the uproared that ensued, he promised to abolish this measure (that he brought himself).

The Greeks, impressed as they were by Tsipras honesty they granted him the government of ‘Defteri Fora Aristera’. Here is the result. VAT is being introduced in education at 23% initially, with the hope that countervailing measures will be found to allow the introduction of a multi-layered rate system.

In what is being lauded by the government as a great success (to come), VAT will be imposed on education services, as follows:

0% for kindergartens and nurseries

6% for foreign language schools, ‘frontistirio’ (tuition centers), dancing schools, music schools etc and vocational schools (IEK)

13% for private schools of primary and secondary education.

If the government ‘achieves’ this, guess what will happen next. Education providers will either mis-report their status to benefit from a lower rate, or will re-classify, or will keep receiving money under the table (as usually happened), or will go out of business as parents who cannot afford the higher rates pull their kids out.

Another win against the rich, another win for tax evasion and muddle. As Mr Filis said, why are we discussing about these peanuts?

For comparison see below for the education VAT regime in the UK.

No VAT for schools, higher or further education where tuition is being provided for a charge. Any ‘closely related’ goods or services provided are also exempt.

No VAT for private tuition which is provided by a sole proprietor or partner.

No VAT for tuition in English as a foreign language (EFL) which is supplied by a recognised commercial provider.

No VAT for vocational training which is provided for a charge.

Good luck to the next generation of Greek workers.

sxoleio

@iGlinavos

<updated 10.11.2015>

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8 thoughts on “Education, education, education and VAT

  1. The striking thing about Greece is how polarised it remains in terms of class. Tsipras has not helped this situation but then ND-voters are just as guilty of disparaging the poor. This is self-destructive and analogous to an animal biting at its wounds. Greece needs a simplified tax system with the emphasis on yield not ideology and envy. It needs a government that cares more about Greece than its own self interest and the interests of its families, friends, villagers and the like. But will these multiplicity of ideologies and interest groups allow such a government to come into being let alone survive. I think not.

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  2. Adding insult to injury, VAT on education is not compatible with EU regulations. The Tsipras gov’t has been explicitly informed about this nearly two months ago.

    eKath 2015-Aug-29: “Commission says private school VAT breaks rules”
    Quote> The interim government has until Monday to decide on whether to scrap the 23 percent value-added tax on private education, following a letter from the European Commission on Friday warning that the levy introduced earlier this summer clashes with European Union regulations, sources told Kathimerini.
    http://www.ekathimerini.com/201031/article/ekathimerini/news/commission-says-private-school-vat-breaks-rules

    Also see EC website
    http://ec.europa.eu/taxation_customs/taxation/vat/topics/exemptions/index_en.htm
    Quote> The VAT Directive prescribes both supplies that EU countries must exempt and supplies that they may choose to exempt. Supplies that must be exempt include certain activities in the public interest (such as medical and dental care, social services, education etc.) as well as most financial and insurance services and certain supplies of land and buildings.

    Recently (2015-Oct-08) Education Minister Filis also clashed with university counsils, which led to the resignation of the president of the council at the University of Crete, the distinguished classicist Grigoris Sifakis.
    http://www.thetoc.gr/eng/news/article/classicist-sifakis-resigns-after-filis-attacks-on-university-councils
    http://www.ekathimerini.com/202376/opinion/ekathimerini/comment/abolishing-standards

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  3. The story continues…

    eKath> 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.
    (see last link below)

    Now it’s not clear to me anymore what exactly the VAT directive says: no VAT allowed on education at all? or only one rate allowed? I’m no expert in these matters. Anyway, this education VAT issue has been lingering since two months, with lots of exposure in the Greek press (see links below). It should have been straightforward for the gov’t to check with the Commission what exactly might be compatible with EU regulations and what not. Now it comes across as amateur improvising.

    2015-08-25 http://www.ekathimerini.com/200898/article/ekathimerini/news/private-schools-urge-u-turn-on-vat
    2015-08-27 http://www.ekathimerini.com/200975/article/ekathimerini/news/scrap-school-vat-demand-parties
    2015-08-29 http://www.ekathimerini.com/201031/article/ekathimerini/news/commission-says-private-school-vat-breaks-rules
    2015-08-31 http://www.ekathimerini.com/201059/article/ekathimerini/news/vat-on-private-education-may-be-suspended
    2015-09-01 http://www.ekathimerini.com/201100/article/ekathimerini/news/education-u-turn-from-syriza
    2015-09-02 http://www.ekathimerini.com/201131/article/ekathimerini/news/vat-on-private-schools-put-off-until-after-elections
    2015-09-06 http://www.ekathimerini.com/201227/article/ekathimerini/community/private-school-vat-death-knell-for-sector
    2015-10-01 http://www.ekathimerini.com/202086/article/ekathimerini/news/more-time-needed-in-private-schools-vat-issue-sources-say
    2015-10-01 http://www.ekathimerini.com/202107/article/ekathimerini/news/vat-on-private-schools-may-cause-pupil-exodus-say-parents
    2015-10-20 http://www.ekathimerini.com/202664/article/ekathimerini/news/govt-indicates-decision-on-vat-in-private-education-reached
    2015-10-20 http://www.thetoc.gr/eng/news/article/proposal-for-six-per-cent-tax-on-tutoring-schools-13-percent-private-schoo
    2015-10-23 http://www.ekathimerini.com/202801/article/ekathimerini/business/creditors-oppose-reduced-vat-on-education

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  4. Glinavos> I am waiting for an explanation by the ministry as to how their VAT rates are compatible with the Directive which exempts education from this type of taxation.

    Fine!

    Apparently VAT on private education ought to be either 23% across the board or none at all, and the gov’t has postponed its decision until Nov. 1. The press isn’t mild in its appreciation of the gov’ts handling of this issue.

    eKathimerini> However, the European Commission has informed Greece that applying a reduced rate goes against EU directives and it will either have to charge 23 percent VAT or none at all.
    http://www.ekathimerini.com/202846/article/ekathimerini/news/greece-to-seek-more-time-after-brussels-objects-to-reduced-vat-rate-for-education

    Times Of Change> The issue has proven a tremendous embarrassment for the government, particularly after the European Commission revealed, in response to a question from Greek European Parliament deputies, that the original proposal for a 23 percent VAT tax on private education came from the Greek government, and not its creditors.
    http://www.thetoc.gr/eng/economy/article/with-its-scaled-education-tax-rejected-government-seeks-alternative-or-23

    Greek Reporter> That was the umpteenth time the Greek PM promised something in order to buy time until some deus ex machina would appear and save the Greek government from embarrassment. The equivalent measure was never found.
    http://greece.greekreporter.com/2015/10/26/greek-government-in-total-confusion-over-vat-on-private-education/

    Now France comes to the rescue:
    Reporter> Protocol between the Hellenic republic and the French Republic For a Partnersip for reforms in the Hellenic Republic
    > This partnership for reforms relies on: i) mutual understanding about working methods; ii) planning and ownership of reforms at the highest level as well as on the ground, at civil service level; iii) consistency and cooperation within the framework of the joint European efforts to support Greece; the desire to see Greece back on the track of socioeconomic development in accordance with the cohesion policy objectives of the European Union
    http://www.reporter.gr/Eidhseis/Politikh/271388-Protocol-between-the-Hellenic-Republic-and-the-French-Republic-For-a-Partnership-for-reforms-in-the-Hellenic-Republic

    It’s roughly what I predicted two months ago in my post “Enarques” of 2015-Aug-19
    https://erikdesonville.wordpress.com/2015/08/19/enarques/

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  5. My previous comment refers to the Greece-France partnership for reforms in Greece.

    Excerpt:
    > The on-going collaboration between Greek Authorities, French Authorities and the Commission through the Structural Reform Support Service (SRSS) constitutes an essential element for the successful development and implementation of this action.
    > In cooperation with the European Union and other Member States acting as reform partners, France and Greece wish to develop their partnership for reform in particular in the following areas, with the aim of, inter alia, enhancing capacity building. These areas have been chosen because of a) their importance in a sustainable reform strategy of Greece towards a more efficient and competent-based administration and their crucial role in rebuilding the fiscal landscape, strengthening the tax system, unlocking growth but also enhancing the trust of the Greek citizens in the Greek administration b) well-known, established and recognized French expertise in these areas.

    Now, with the visit of Mr Dombrovskis (Commission Vice-President) to Athens, also the European Commission and Greece published a partnership agreement for technical cooperation in support of the Greek reform process (as agreed and specified in MoU-3).

    The Commission, through its Structural Reform Support Service (SRSS), and various assigned partners (ministries from other member states, IMF, OECD etc) will provide targeted technical support and expertise in various areas of administration (exhaustive list in the text). Financing for this technical assistance comes from European budgets.

    The agreement is titled “Plan for Technical Cooperation in Support of Structural Reforms, European Commission – Greek Authorities, October 2015”.
    Full text: http://ec.europa.eu/economy_finance/assistance_eu_ms/greek_loan_facility/pdf/plan-tc-fin_en.pdf

    From these partnership and technical cooperation texts, it’s obvious that “Europe” does whatever is reasonably possible to assist Greece in its struggle to overcome its hardships. But ultimately it’s up to the Greek authorities to grab the lifeline and do what needs to be done.

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