From October 1st, a first round of six Greek islands are set to lose their VAT rate subsidies as part of the third creditor bailout package. 

A package of cuts was agreed by the Greek government as part of a financial bailout deal with the European Union, International Monetary Fund and European Central Bank earlier this year.

The holiday islands are Mykonos, Naxos, Paros, Rhodes, Santorini and Skiathos. 

The ending of the tax subsidy will hit the cost of hotel and villa accommodation, and the prices at cafes and restaurants.

The holiday islands’ VAT rates will move to the national level of six per cent, 13 per cent and 23 per cent for the two reduced rates and standard rate, respectively. 

The current subsidised rates are five per cent, nine per cent and 16 per cent.

There was significant campaigning against the rise, with concern that it would damage the key Greek tourism industry. 

But Greece’s creditors made it a condition of the latest bailout.

Greece’s Syriza-led leftist government, sworn in last week, overruled minority parties on the matter, promising a review of the measure in 2016 and a potential reversal if tax revenues were ahead of targets.

Other islands will likely lose their VAT rate reductions in June 2016 and 2017.

Richard Asquith, vice president global tax at tax compliance company Avalara commented: “Given that the Greek tourism industry has stood up well to the recent crisis, the government had little argument against withdrawing the subsidy at the creditors’ request.

“However, it may put a question mark over similar subsidies in countries like Ireland.”