ATHENS, Greece - September 1, 2011 - Tax evasion in Greece threatened to take organized form on Thursday when café and restaurant owners refused to pay a 10-point VAT rise, as a deep recession clashes with the government’s increasingly desperate search for revenue.

The steep rise in value added tax on the hospitality sector from 13%- 23% is part of a package of fiscal measures agreed to in return for the country’s second financial rescue by European Union partners.

But for many of Greece’s ubiquitous cafés and souvlaki stands, which have already seen a 20%-40% decline in business in the past year as customers rein in spending, the VAT rise is the final straw.

“Our members voted at an extraordinary general assembly not to pay the increase because it will drive many establishments out of business,” said the PanHellenic Federation of Restaurants and Related Professions, representing more than 15,000 hospitality businesses.

Sete, an association of Greek hoteliers and tour operators, said the tax rise was “inappropriate, unjust and will not produce the revenues it targets”.

The measure is projected to raise over a billion dollars over the next year, according to the finance ministry, which says owners will be fined for tax evasion if they fail to pay VAT at the increased rate.

The restaurateurs’ reaction highlights the desperation of Greece’s small business community amid the worst recession in memory. The economy is set to shrink this year by more than 5% and by another 2% in 2012, according to finance ministry projections.