The European Commission has proposed reforms to the rules on VAT in the European Union to allow states more freedom to reduce the tax. Brussels seeks to amend legislation dating from 1992 that’s plagued with derogations that create divergences between countries, while giving member states more room for maneuver in this economically sensitive area.
The Commissioner for Economic and Monetary Affairs, Pierre Moscovici, presented the legislative proposal at a press conference on Thursday.
The current system requires countries to set a standard rate equal to or greater than 15 percent, and allows them to establish a reduced rate of a maximum of 5 percent for two categories of products. A range of exemptions apply to individual member states for different historical reasons. The Commission now proposes that, in addition to the standard rate of at least 15 percent, countries can establish two reduced rates of between 5 percent and the standard rate they choose, a super-reduced rate of between 0 percent and the reduced rate chosen; and, finally, a VAT exemption of 0 percent.
In addition, the current list of goods and services to which reduced rates may apply will be eliminated and a new list of products will be created instead, to which the standard rate should always apply. Among the products that would no longer have an advantageous VAT, even if countries requested it, would be, for example, weapons, alcoholic beverages, tobacco, products related to gambling, precious metals, smartphones, household appliances or services. However, the weighted average VAT rate must always be at least 12 percent in order to “safeguard public revenues”, says the Commission.
Brussels says that the current model has led to a “patchwork” of regulations in the EU that also generated “inequalities” within the bloc. “Some Member States enjoy derogations, while others are not allowed to apply a reduced rate or zero rate to the same products or services,” said the Commission in a press release.
The Commission’s proposal will now go before the Council, the Parliament and the Economic and Social Committee for consideration before passing into EU law.