EU may permit 0% VAT
Executive wants to give states more flexibility in allowing lower levels of taxes and proposes exemptions for SMEs operating in more than one state
Brussels is committed to liberalising the European system of value added tax (VAT) and to help countries in the European Union (EU) lower direct taxes on consumption. Specifically, the European Commission (EC) proposed yesterday to give more flexibility to Member States to apply reduced VAT rates. If approved, states may establish three new reductions, even going so far as to allowing for the first time a 0% rate on some goods. After a quarter century of limiting the lowest band to 5% without exception, the EU now wants to give more “freedom” to lower taxes. “We want more flexibility for governments to decide their political preferences on VAT,” said the Economic and Monetary Affairs Commissioner Pierre Moscovici yesterday. The proposal now awaits the approval of finance ministers on Tuesday.
The EU has a list of goods and services to which reduced rates can be applied that dates from 1992 which the executive considers outdated and rigid. If the proposal goes ahead, this would be cleared and replaced by a method to establish which products may not be eligible for reduced VAT, such as alcohol, tobacco or weapons. As such, products which are not on the list at present may benefit from lower VAT, as individual states could decide, but within a set framework of maintaining an average weighting or 12%. The present EU average is higher. In the UK for example, it sits at 19%.
With most EU companies being SMEs, VAT hinders growth if they operate in more than one state, and Moscovici will propose to the ministers that in certain cases, they should be granted exemptions from VAT.