EC VAT proposals would lead to higher prices on zero rated items

Accountants may be interested to read that the Institute of Directors has attacked proposals by the European Commission to get rid of some reduced rates of VAT.

The EC has published a green paper about the future of VAT and has proposed that legislation should be decided by majority voting. This would withdraw the UK’s veto, standardise the rules surrounding administration and eliminate the VAT threshold and the rates such as the zero rate currently applied to children’s clothing.

The advantages of implementing these measures would be far outweighed by the disadvantages of stopping European governments from adapting VAT to fit the circumstances of their own nations, a spokesman from the IoD remarked.

Head of taxation, Richard Baron, said the commission is being sensible and taking a good look at the way VAT operates. As well as being a huge burden for companies, it is prone to fraud and therefore any improvements will always be welcome.

However, he continued, we must be careful not to let the EU assault our national tax powers, or to assume that Brussels knows best. The IoD hopes the coalition will resist a lot of these new proposals.

The majority of books, children’s clothing, food, newspapers and public transport are zero rated VAT items. If the EU harmonised rates across the Union, the price of these goods would rise quite dramatically. Currently countries have the power to set which goods attract reduced VAT rates, but these new proposals would put an end to that.

Brussels maintains that the current system is messy and estimates that between 12% and 20% of VAT is lost to factors including tax avoidance and fraud.

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