An 'Island Tax' Could Harm One Bright Spot In Greek Economy

An 'Island Tax' Could Harm One Bright Spot In Greek Economy

3:43pm Aug 05, 2015
Petros Hatzigeorgiou, whose family has been making wine for more than 150 years, at his winery outside the village of Atsiki, Lemnos. He says islanders can weather the tax by working harder. "That's how we can fight it, no matter how much it hurts," he sa
Petros Hatzigeorgiou, whose family has been making wine for more than 150 years, at his winery outside the village of Atsiki, Lemnos. He says islanders can weather the tax by working harder. "That's how we can fight it, no matter how much it hurts," he sa
Joanna Kakissis / NPR
  • Petros Hatzigeorgiou, whose family has been making wine for more than 150 years, at his winery outside the village of Atsiki, Lemnos. He says islanders can weather the tax by working harder. "That's how we can fight it, no matter how much it hurts," he sa

    Petros Hatzigeorgiou, whose family has been making wine for more than 150 years, at his winery outside the village of Atsiki, Lemnos. He says islanders can weather the tax by working harder. "That's how we can fight it, no matter how much it hurts," he sa

    Joanna Kakissis / NPR

  • Families play on the beach near the village of Thanos, Lemnos. The island has more than a hundred beaches. Greek tourists like Lemnos because it's affordable and relaxing, and foreign tourists like its unspoiled beauty and traditional charm.

    Families play on the beach near the village of Thanos, Lemnos. The island has more than a hundred beaches. Greek tourists like Lemnos because it's affordable and relaxing, and foreign tourists like its unspoiled beauty and traditional charm.

    Joanna Kakissis for NPR

For years, hotels, shops and restaurants on the far-flung Greek islands kept costs low thanks to a big tax break. And tourism has been one bright spot in Greece's barely functioning economy.

The Greek islands are still enjoying record numbers of tourists this summer.
But now the country's creditors are demanding those islands raise their taxes to the same level as everywhere else in Greece.

And that's going to have an impact on places like the Porto Myrina Palace resort on the island of Lemnos, where roughly a hundred very fit British tourists were recently lined up at the reception desk. They had just arrived for a holiday of wind-surfing, scuba-diving and water-skiing on this island of sandy beaches and sage-scented villages.

Manager Matt Goodwin is an Australian who fell in love with Lemnos as a tourist and decided to come here to run a resort.

"These northern Aegean islands, such as Lemnos, have the issue that we don't get tourism for six months a year," he says. "It really is only centered around two, maximum three months a year. So any changes to the net profit of whatever we do will have an effect on how long we can operate sometimes."

That's why he's nervous about a big sales tax increase that merchants will have to start paying this fall. European lenders are pushing Greece to raise tax revenue in exchange for more bailout loans.

The northern Aegean islands paid a lower tax rate — about a third less — for years to compensate for high transportation costs to export and import goods to and from the mainland. The tax exemption helped keep costs down on popular tourist islands, such as Rhodes, says Yiannis Tsarmougelis, who teaches economics at the University of the Aegean.

European lenders argue the low taxes violate free competition, he says.

A Tax Hike In October

Starting in October, merchants on Lemnos and other Aegean islands will have to pay the same tax, known as a value added tax, as the rest of Greece. It's as high as 23 percent.

Like others hoteliers on the island, Goodwin say the resort will manage, at least for now.

"We've made the decision not to reflect it in the prices," he says. "We will absorb it for this year, and of course that's something we review every year."

And every year counts on Lemnos, which has only courted tourists for about 20 years. Before that, the island economy was dependent on a large military base that's much smaller now.

Tourism consultant Kostas Katenidis says the higher tax is coming just as Lemnos is branding itself as a unspoiled paradise.

"It's a traditional island. The food is traditional, the products are traditional," he says. "And the life, the way of life, is traditional also. We have a total of over 110 beaches. And they're so isolated in the middle of summer, you can be on a beach by yourself six, seven kilometers long."

A Big Hit For Producers

Petros Hatzigeorgiou, whose family has been making wine for more than 150 years, at his winery outside the village of Atsiki, Lemnos. He says islanders can weather the tax by working harder.

Petros Hatzigeorgiou, whose family has been making wine for more than 150 years, at his winery outside the village of Atsiki, Lemnos. He says islanders can weather the tax by working harder. "That's how we can fight it, no matter how much it hurts," he says. "By showing them we can survive despite it."

Joanna Kakissis/NPR

Local producers will be hit hardest by the tax, says Makis Psarras, chairman of the business chamber here.

"We export our wine, cheese, pasta and even our baked goods," Psarras says. "These products have received awards, and those producing them were making money with the tax exemption. Now maybe they won't."

At the artisan food shop she's run for eight years, Foteini Garali offers a box of the pasta she makes with hearty, locally grown Lemnos wheat to a well-known chef visiting from Athens.

"This pasta was unknown in Greece until tourism helped our business and helped get the word out about this island," she says. "Now our products are known all over Greece and outside of the country as well."

Garali says she's willing to forgo a profit and just break even rather than increase her prices now, when Lemnos is just picking up steam as a tourist destination.

Otherwise, she says, "we'll get a bad name here on Lemnos. Pretty soon, people will start saying, you know, I'm not going back to Lemnos because it was just too expensive."

Winery owner Petros Hatzigeorgiou says he will also grit his teeth and swallow the tax increase, even though he estimates he will pay twice as much for the bottles he imports for his wine. In turn, he exports his wine as far away as Hong Kong.

He gestures to a group of Czechs sampling his white wine as part of a gastronomy food tour run by Alexandros Alexandrou, a 26-year-old native of the island.

"I'm just getting my business off the ground, and it's of course connected to tourism," Alexandrou says. "So hit us with these tax increases, fine. But give us time to plan for them, because we want to make enough money to keep working."

The Czech tourists buy several bottles of wine. Hatzigeorgiou wants to make sure they return next year.

"We can't fight this tax by protesting," he says. "We can fight by being more productive than anyone ever imagined. We can fight by changing the way we work."

Copyright 2015 NPR. To see more, visit http://www.npr.org/.

Transcript

DAVID GREENE, HOST:

If there's been one bright spot in Greece's troubled economy, it's been tourism. The Greek islands are seeing record numbers of visitors this summer. For years, hotels, shops and restaurants on far-flung Greek islands kept costs low thanks to a big tax break. But now the country's creditors are demanding they pay higher taxes. Joanna Kakissis traveled to the Greek island of Lemnos.

UNIDENTIFIED WOMAN: Welcome Porto Myrina Palace.

JOANNA KAKISSIS, BYLINE: About a hundred very fit British tourists line up at the reception desk of the Porto Myrina Palace resort on the island of Lemnos. They've just arrived for a holiday of windsurfing, scuba diving and water skiing. Resort manager Matt Goodwin is an Australian who fell in love with Lemnos as a tourist. He explains the challenges of running a resort here.

MATT GOODWIN: These northern Aegean islands, such as Lemnos, have the issue that we don't get tourism for six months a year. It really is only centered around to a maximum three months a year. So any changes to sort of the net profit for whatever we do will have effect on how long we can operate sometimes.

KAKISSIS: That's why he's nervous about the big tax increase that merchants here will have to pay starting this fall. The Aegean islands paid less tax for years to compensate for the high transportation costs to and from the mainland. Starting in October, they will have to pay the same value-added tax, as it's called, as the rest of Greece. Like other hoteliers on the island, Goodwin says the resort will manage for now.

GOODWIN: We've made the decision not to reflect in the prices. We will absorb it for this year, and, of course, it's something we review every year.

KAKISSIS: And every year counts on Lemnos, which has only courted tourists for about 20 years. Before that, its economy was dependent on a large military base that's now much smaller. I meet tourism consultant Kostas Katenidis at a busy beach bar. He says the new tax is coming just as Lemnos is branding itself as an unspoiled paradise.

KOSTAS KATENIDIS: The food is traditional. The products are traditional. And the life - the way of life is traditional also. We have in total over 110 beaches, and they're so isolated in summer. In the middle of summer, you can be on the beach by yourself 6, 7 kilometers long.

KAKISSIS: I meet Foteini Garali at the artisanal food shop she's run for eight years. We sit in the kitchen, where she makes a special local pasta called flomari.

FOTEINI GARALI: (Through interpreter) This pasta was unknown in Greece until tourism helped their products become known all over Greece and outside of the country as well.

KAKISSIS: Garali says she's reluctant to increase her prices now, just as Lemnos is becoming well-known.

GARALI: (Through interpreter) We'll get a bad name here in Lemnos. Pretty soon, people will start saying, no, I'm not going back to Lemnos because it was just too expensive.

KAKISSIS: At a nearby village, winery owner Petros Hatzigeorgiou says he will also swallow the tax increase, even though he expects the cost of the imported wine bottles he uses to double. He gestures to a group of Czech tourists sampling his white wine. They buy several bottles. He wants to make sure they return next year.

PETROS HATZIGEORGIOU: (Speaking Greek).

KAKISSIS: "We cannot fight this tax by protesting," he says. We can fight by being more productive and by changing the way we work. For NPR News, I'm Joanna Kakissis on the island of Lemnos, Greece. Transcript provided by NPR, Copyright NPR.

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