European Commission wants to lower VAT rates

8th July 2008, Comments 0 comments

The European Commission is proposing for a reduced- value-added tax rates on food, non-alcoholic beverages and labour intensive services.

8 July 2008

BELGIUM – The European Commission on Monday proposed to expand the list of services where reduced value added tax rates can be applied in all EU member states, including catering, hairdressers and housing.

Some of the 27 EU countries have already gained exemptions from the full rate on various services until 2010, and the proposal seeks to grant all states the same conditions and make the exemptions permanent.

The EU executive hopes it will provide a boost to the services concerned and - by only having to pay reduced instead of full rates - shift more consumers and workers from the black to the formal economy, thereby fuelling economic growth.

The minimum standard rate of VAT throughout the EU is 15 percent.

Under the proposal, which needs unanimous backing from all 27 EU governments, countries would be allowed to levy reduced rates - as low as 5 percent - on all restaurant services with the exception of alcoholic drinks sales; construction, renovation and maintenance of housing; bike, shoe, computer and other repairs; and all domestic and personal care services.

At present, 11 of the 27 member levy VAT rates below the 15 percent standard level on a variety of labour-intensive local services, but their right to do so is due to expire in 2010.  

Belgium is not allowed the lowered rate.

If the finance ministers adopt the proposal by mid-2009, the Tax Commissioner is confidence that it could come into effect in 2011 as no state is forced to introduce reduced rates.

"Because of budget deficits, it should remain optional so if a country can't afford it today they may be able to afford it tomorrow," Kovacs told reporters on Monday.

EU Tax Commissioner Laszlo Kovacs is seeking to replace this patchwork of temporary permissions with a coherent, permanent set of rules under which all countries would be able to levy reduced rates on the same goods and services.

Studies show that this would not be likely to distort competition or harm the bloc's internal market, the EU executive said.

A minimum VAT rate of 5 percent would be allowed on:
- Housing sector, construction and supply, with any reference to social policy deleted. It would also include renovation, repairing and cleaning;
- Minor repairs to bicycles, tricycles as well as shoe, clothing, computer and watch repairs;
- Restaurants and catering services;
- Gardening and landscaping;
- General cleaning, ironing, laundering;
- All absorbent hygiene products, including nappies, hairdressing, beauty treatments, medical equipment for the disabled;

The proposal would also have amendments to allow continued reduced rates on some goods such as audio books.

[AP / / Expatica]

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