EU Tax Commissioner Laszlo Kovacs has unveiled proposals to simplify tax rules and reduce the number of items that qualify for reduced rates across the 27-nation bloc. But his plans are likely to face opposition from a number of member states which are looking to use VAT cuts to promote family-friendly and job policies.
The Commission called, on 5 July 2007, for a “simplification and rationalisation” of European VAT rules, after an independent economic study showed that using a single uniform VAT rate – rather than the myriad of different ones currently applied – would improve consumer welfare, cut costs for businesses and reduce distortions in the internal market.
The Commission proposal would nevertheless maintain the possibility of applying “a very low rate” for “goods and services of first necessity”, such as food. It would also allow a second reduced – but slightly higher – rate for “goods and services deserving preferential treatment for cultural, educational, public transport, employment and environmental reasons” – although it points out that, while the use of reduced rates can boost demand for such “under-consumed” products and services, other economic tools, such as direct subsidies, could be more efficient.
The Commission is also proposing to extend current derogations – including those granted to the new member states, and which were due to expire next year at the latest – until the end of 2010 in order to ensure equal treatment between all the EU members.
But finding an agreement on a new system will prove to be a tough job for Tax Commissioner Laszlo Kovacs. Indeed, any new scheme will require the unanimous agreement among all 27 member states. And, while some countries, like Germany, are firmly against introducing lower taxes for more industries, others, like France, Hungary, Poland, Spain and Portugal are seeking to extend lower tax rates to new sectors such as restaurants and diapers.