Poland on course for VAT clash with the rest of the EU

The government in Warsaw has declared that it will veto an EU deal on reduced VAT rates for certain services. The announcement is expected to result in a conflict between Poland and the 24 other member states.

The announcement was made in a press release  by Zyta Gilowska, the Polish minister of finance, published on the evening of 30 January 2006, one day after Poland was given a further two days  to reconsider its position on the proposed deal. At the same time, the Czech Republic and Cyprus, who had initially been opposed to the proposed VAT deal, had signalled that they would be ready to sign up to it. 

Member states are seeking an agreement on reduced VAT rates for services to follow up similar rules which ran out on 31 December 2005. The regulation would allow VAT rates below the 15% minimum prescribed by the EU for a limited range of so-called labour-intensive services, namely domestic care, home renovations, window cleaning, hairdressing and repairs for clothes and bicycles. 

French President Jacques Chirac wanted to include restaurant visits on the list, but gave in to other countries’ resistance in order to make an agreement possible. If member states fail to find unanimity on a new deal, EU Tax Commissioner László Kovács would have to act against all member states maintaining the former, lower tax rates. Currently, nine countries are applying the scheme. 

Poland is opposed to the deal because it wants to maintain lower tax rates for a wider range of services and commodities, including all house building, agricultural machinery and children’s books, which were subject to a special clause in the country’s accession treaty that would otherwise run out in 2007. The Polish government blamed the Austrian Presidency for the failure to reach a deal, citing Vienna’s “unwillingness to negotiate”. 

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