Brussels, 07/07/2003 (Agence Europe) - The European Commission could, at best, give its stance next week on the regulation relating to reduced VAT rates. The decision expected this week was postponed failing an agreement, it seems, between the French, British and German Commissioners' cabinets.
The services of Commissioner Frits Bolkestein propose a regulation that will integrate into a single text the special system allowing for VAT reductions for high labour intensive services and annex H concerning the reduced rates of VAT for goods and services with social and cultural objective.
The regulation would replace the derogations specific to each member State by a single list of exemptions that the Member Sates would be free to apply, or not. Germany is apparently hostile to this system, which would bring it up against direct pressure from its industry for reducing indirect taxation, when it is compelled to ensure budgetary austerity. The list should mainly integrate VAT reductions on catering services, currently applied by 9 Member States and requested by France, which has not benefited from this to date, as it had not requested it at the time the text was adopted. It is not very likely, however, that the VAT reduction on records, as requested by the recording industry, will be integrated into the text. Ireland and the United Kingdom for their part call for the right to be able to maintain zero duties on children's clothing, a historic and sensitive derogation at national level but which does not seem to receive the favour of Mr Bolkestein's services.
Finally, the proposal would impose an increase in VAT rates for radio and television services, going from the reduced rate of 5% to 20%. This option caused a general outcry in France especially. According to the assessment cited in the French press, this increase would represent a loss in receipts of EUR 170 million for Canal+ and EUR 360 million for the French radio-television. In a working paper adopted early June, the Commission noted that the close examination of the outcome of reduced VAT rate experience on certain high labour intensity services, does not allow one to affirm that the aims pursued to increase employment and reduce undeclared work have not been reached. "Calculated at EU level for one and the same budgetary cost, a fall in labour costs creates 52% more jobs than a fall in the rate of VAT entirely transmitted in prices".