Brussels, 01/12/2010 (Agence Europe) - Unveiling its Green Paper on the future of VAT and moving towards a simpler, more robust and efficient VAT system, the European Commission kicked off a public consultation exercise on 1 December 2010 that will run until 31 May 2011 on changes to be made to the current value added tax (VAT) system. The idea is to gather information, opinion and comments from consumers, business and tax authorities to help the Commission draft guidelines and objectives for introducing changes at the end of 2011.
An ambitious, but necessary, objective. The current system was designed in the 1960s, but is onerous and does not fit the modern services market that uses modern technology. This maladjustment is costly with serious administrative overheads and the possibility of fraud. It is calculated to translate into lost public revenue of some €100bn a year for the 27 member states. Value added tax is gaining in importance for public purses, netting €862bn in 2008 in the EU27 (averaging 7.8% of member states' GDP and 21.5% of their total tax income), and may therefore compensate for lower income from other types of tax in economies affected by the recession and the ageing population.
Main lines of attack. In the face of resistance from the member states, which have thus far managed to avert an updating of the system, the Commission will have to tackle several major issues if it is to achieve a stable, uniform system: - settling the ten-year debate about whether VAT should be levied in the country where a product or service originates for tax purposes or the country where it is sold; - examining ways of harmonising standard VAT (currently ranging from 15% to 25% depending on the member state in question) and simplifying the reduced VAT scheme. The Green Paper recommends that a single rate should apply to all goods and services, avoiding reduced VAT as much as possible. Other issues to be settled are whether VAT is set at the right level, whether the rules are natural and transparent, how to simplify red tape, cut costs and reduce fraud. On reducing fraud, the Green Paper suggests that the Commission should republish its one-stop-VAT-shop idea. (F.G./transl.fl)