The EU Executive is planning to hold a review of Value Added Tax (VAT) which may call into question the right of Britain to waive sales duty on medicines, food and children’s clothing. The comment was made by Pierre Moscovici who is the economics commissioner. The plan could cause controversy as David Cameron aims to organise a referendum on the membership of Britain in the EU.
Mr. Moscovici, who is a former finance minister for France said that the EU is looking to overhaul the VAT system. They will be looking at whether to scrap the zero rate policy on certain items in Britain, a policy which outdates the current EU 5% VAT rate. When pressed by the media, he said that no decision has been made yet, but added that zero rate VAT is ‘not the best idea’. Lastly, he said it was ‘far too early’ to discuss any proposals which may emerge as a result of the review.
Within the EU, Britain along with Ireland, is deemed to be ‘unusual’ in the way that it waives VAT. It would be able to veto any proposal to do away with the historical exemptions to the 5% rule, which was established back in the 1990’s. There is an ongoing argument with Brussels over tax and it is said that this could add to pressure on David Cameron from people who wish to quit the EU. There was a campaign late last year to protest against the Government’s inability to waive VAT on womens sanitary items, known as the ‘tampon tax’.
Several people have pushed the European commission to review the VAT system, as a result of certain technological developments. For instance, last year the EU ruled that ebooks wouldn’t be able to benefit from lower VAT charged on their paper equivalents because they were not included in a law which was written before they were invented. States in the EU must levy VAT of at least 15 per cent, but can go as low as 5% for items on a ‘reduced rate’ list.
Mr. Moscovici said that the EU could create a new list of items, or countries could be allowed to create their own. This would give them more freedom to choose which goods can benefit from a lower tax rate. Officials from Britain had no comment on this.
This Friday, David Cameron will be in Brussels for talks with the Commission president, Jean-Claude Juncker. The talks come three weeks before a summit where he hopes to make a deal on an EU reform before holding a referendum.
For more information on VAT rates, as a business owner or customer, contact HMRC to speak with the VAT Helpline.