EU Approves Tax Cut on Services

EU finance ministers reached a political agreement on Tuesday (10 March), enabling member state governments to reduce Value Added Tax in a number of energy intensive service sectors.

Under the current EU directive controlling the sales tax, member states are not allowed to reduce VAT below 15 percent. Following Monday's decision, governments will be able to reduce the tax to as low as 5.5 percent in a number of areas, including the restaurant sector.

"Some of the issues we solved today have been on the agenda for over ten years," said taxation commissioner Laszlo Kovacs, who attended the meeting.

The French government has pushed hard for reduced VAT rates, especially in the restaurant sector, but up until today it has faced considerable opposition from the German government over concerns of reduced tax revenue.

Fears also existed that variable VAT rates amongst member states could cause considerable price differences throughout the European Union.

The agreement will allow service areas where reduced VAT levels already exist to maintain the derogation beyond the previous deadline of 2010.

These service areas include bicycle repairs, hairdressing, renovation of private dwellings and window-cleaning.

Domestic care services for children, the elderly, sick, and disabled are also eligible for reduced VAT rates.

Mr Kovacs stressed that member states were not being forced to reduce the sales tax. "I want to underline that reduced rates are not an obligation, it's an option," he said.

So while EU citizens may now pay less for a 'plat du jour' in Paris, there is no guarantee this will be the case in other capital cities.

Bulgaria, Denmark, Estonia, Germany and Lithuania attached a statement to the ministers' agreement saying they "do not wish to make use of the extended scope of VAT rates."

There was praise for Czech finance minister Miroslav Kalousek, who chaired the meeting, that ran over time by more than four hours as member states insisted on numerous amendments to the negotiating text provided by the Czech presidency.

Speaking after the meeting, Mr Miroslav said ministers had also reached an agreement on the main document on the economic situation to be submitted for adoption by EU leaders at a summit on 19-20 March.

He also said they had agreed on a common EU position for the G20 finance ministers' meeting this coming Saturday and the leaders summit on 2 April in London.

Economy commissioner Joaquin Almunia expressed his satisfaction that finance ministers had adopted the stability and convergence programmes for 21 EU states, documents that outline government taxation and spending plans for the next few years.

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