Greek Prime Minister Antonis Samaras on Wednesday announced the VAT rate on food services would be reduced to 13 percent from 23 percent as of August 1.
The move comes ahead of a key parliament vote on more austerity and reform measures scheduled for midnight local time, considered a test for the new coalition government.
"Despite difficulties, significant progress has been made for our country today. Problems have not been resolved of course. However, we meet targets and we have achieved real progress," Samaras said in a televised address.
"For the first time, we managed to avoid some tough measures and see positive changes," he stressed, adding the VAT reduction was a result of negotiations with international lenders over the past few months.
The new tax rate will be implemented as a pilot program as European Union and International Monetary Fund creditors who are keeping Greece afloat retain skepticism over the impact on state revenues, he noted.
Athens expects that the tax reduction -- the first after three years of tax hikes -- will strengthen consumption and subsequently revenues and support employment in the country hit hard by deep recession.
The main prerequisite for the successful outcome of the pilot program, Samaras underlined, is for entrepreneurs not to continue tax evasion. If the program fails, the VAT rate will be increased again and the government will not be able to reduce more taxes, he warned.
Greek parliament on Wednesday is due to vote on a new set of unpopular policies requested by lenders in exchange of further bailout aid in coming weeks.
The planned dismissal of thousands of civil servants in the coming months have prompted protests by trade unions, adding pressure on the new coalition government which was sworn in weeks ago. A junior partner in the previous coalition withdrew over layoffs at the national television and radio broadcaster.
The conservative New Democracy (ND) party of Samaras and his socialist PASOK coalition partners hold 155 seats in the 300-member assembly. Despite some objections raised by some ND and PASOK deputies on certain articles of the omnibus bill which contains the new policies, analysts in Athens forecast an "easy passing" of the bill.
Protesters gathered outside the parliament building for a third consecutive day said they will continue mobilizations against government policies regardless of the result in parliament.