Brussels, 16/07/2003 (Agence Europe) - On Wednesday, the European Commission adopted its proposal to simplify rules on reduced VAT rates. After an hour-long discussion, the College of Commissioners adopted a list of twenty sectors that could benefit from reductions, including restaurants, housing or renovation of housing, but excluding children's shoes and clothing for which the United Kingdom, Ireland and Luxembourg are fighting, as well as for CDs and DVDs for which the recording industry is also campaigning.
Commissioner Frits Bolkestein noted, when presenting his proposal to the press, how sensitive this issue is, even causing the fall of the Burton government in Ireland. It is clearly expected that the United Kingdom and Ireland will put up resistance within the Council and that some will accuse the suggested tax on maternity. He nonetheless hoped that the Council decision to be adopted unanimously would not introduce competition distortion or greater complexity into the system. The proposal will be examined within Council working groups from next week on then early September, before being discussed at the informal Ecofin Council on 12 and 13 September.
The Commission proposal aims to "rationalise the list of goods and services that benefit from the reduced rate", and to ensure more transparent and equitable application of the system, Commissioner Bolkestein commented. The proposal summarises in a single text the rules that applied to goods and services of a cultural and social kind, and those defined for high labour intensive services. It does not introduce new sectors benefiting from reduction, but extends to the whole of the EU certain exemptions applied hitherto by some Member States only. The Member States will be free to introduce, or not, such reductions on products and services included on the list. The system will be revised after five years, instead of the two years at the present time.
The Commission has decided not to include CDs and DVDs on the list, because, unlike books, the rate of VAT on discs, videos or DVDs is already harmonised. Amendment would mean a step backward, Commissioner Frits Bolkestein said. He considered that authorising Member States to apply reduced rates in this sector would bring in competition distortion. For products that are easily transported like CDS, if Germany applies rates of 5% and Denmark rates of 25%, there could be distortion, he argued.
The Commission finally also rejected requests concerning children's clothing and footwear, for which the United Kingdom and Ireland apply zero rates, and Luxembourg a reduced rate of 3%. Frits Bolkestein insisted it is not the clients, public or children who benefit from VAT reductions, but producers and retailers. Citing the example of Mothercare, he remarked that retailers generally put the profits made by VAT reduction in their pockets in the UK in order to pass them on to their customers on the continent. A Commission press release notes that, with a zero rate, prices of children's clothing remain 16% higher in the United Kingdom and 26% in Luxembourg.
The list includes: - foodstuffs (but not alcohol); - water, gas and electricity supplies; - pharmaceutical products; - equipment for the disabled; - children's car seats; - passenger transport and carriage of their luggage; - supplies of books, newspapers and magazines; - tickets to shows, museums, zoos, etc.; - services provided by writers, composers and interpreters and the copyright due to them; - entry to sports events and the right to use sports installations; - the delivery, construction, transformation, renovation, repair, maintenance and cleaning of housing; - housing rents; - supplies of goods and the provision of services normally intended to be used in farm production (except equipment such as machines or buildings); - supplies of live plants and other floriculture products as well as fire wood; - accommodation in hotels, holiday residences, camping sites, etc.; - restaurants; - services and delivery of goods by social organisations; - funeral services and cremation; - medical and dental care, thermal cures; - sewage services and public road cleaning services, the removal of household waste and the recycling or processing of waste.
The UEAPME, which represents SMEs in Brussels, considers this decision to be very satisfactory in so far as restaurants, building, housing and cleaning are included, the spokesperson, Raphael Anspach, notes. In his view, the only things lacking are hairdressing and snacks, but, he says, this was to be predicted after the Commission's report early June showing that VAT reduction had not significantly reduced either the price of high labour intensive services, nor undeclared work.