EC proposals to cut VAT rate for services

faceman

in a time of recession the EU is considering allowing the reduction of VAT on some services to aid struggling economies etc. full article below.

http://www.kpmg.co.uk/news/detail.cfm?pr=3255

Interesting that our Government chose to raise the higher VAT rate during a recession which could only serve to further stiffle growth as well as present the risk (which we saw take place during the McCreevey years) that when it is (hopefully) reduced to what it is now, that the decrease wont be passed on to consumers.

Hitman Actual

faceman wrote: »

in a time of recession the EU is considering allowing the reduction of VAT on some services to aid struggling economies etc. full article below.

http://www.kpmg.co.uk/news/detail.cfm?pr=3255

Interesting that our Government chose to raise the higher VAT rate during a recession which could only serve to further stiffle growth as well as present the risk (which we saw take place during the McCreevey years) that when it is (hopefully) reduced to what it is now, that the decrease wont be passed on to consumers.

This would present an interesting problem for the government. On one hand, they'd have an excellent way to show the direct benefits of EU membership to the general public, something that they've been really struggling to do. But a drop to 5% VAT really hits the public finances hard, so the chances of them rowing back on the budget measures are very unlikely.

But, as VAT is an indirect tax and a competence (or shared competence?) of the EU, would the government be obliged to introduce the reduced VAT anyway? Or would it just be another reduced-band option?

oscarBravo

The EU rules only set the minimum values for VAT rates, at 5% and 15% respectively. The proposals referred to in the OP would allow some services to be charged at the lower rate instead of the standard rate - there's no suggestion of reducing the VAT rate to 5% (although the reduced rate in the UK is already 5%).

Basically, it's proposed to allow some labour-intensive businesses to charge 13.5% VAT instead of 21% (or 21.5%, as it will shortly be).

faceman

oscarBravo wrote: »

The EU rules only set the minimum values for VAT rates, at 5% and 15% respectively. The proposals referred to in the OP would allow some services to be charged at the lower rate instead of the standard rate - there's no suggestion of reducing the VAT rate to 5% (although the reduced rate in the UK is already 5%).

Basically, it's proposed to allow some labour-intensive businesses to charge 13.5% VAT instead of 21% (or 21.5%, as it will shortly be).

You've said it better than me.

Hitman Actual

oscarBravo wrote: »

The EU rules only set the minimum values for VAT rates, at 5% and 15% respectively. The proposals referred to in the OP would allow some services to be charged at the lower rate instead of the standard rate - there's no suggestion of reducing the VAT rate to 5% (although the reduced rate in the UK is already 5%).

Basically, it's proposed to allow some labour-intensive businesses to charge 13.5% VAT instead of 21% (or 21.5%, as it will shortly be).

Ah okay, thanks oscar. I guess my point still stands though- if the government have the option of moving the relevant services to the reduced VAT rate, will they do it? A drop from 21.5% to 13.5% is still quite significant.

faceman

lenny_leonard wrote: »

Ah okay, thanks oscar. I guess my point still stands though- if the government have the option of moving the relevant services to the reduced VAT rate, will they do it? A drop from 21.5% to 13.5% is still quite significant.

No government will take some a massive drop. However I think a clever government will see the benefit of temporarily dropping the VAT making short terms losses to try boost confidence and offering long term benefit. In theory, IMO of course!

oscarBravo

I need to do some more digging when I get a minute, but this is a proposed expansion of a pilot scheme that's been running since 1999, and repeatedly extended. Only some EU member states took up the option of participating in the scheme, and Ireland wasn't one of them, at least initially.

Short version: this may not apply to us at all.

dresden8

Ironically, increasing the VAT rate will also show the benefits of EU membership when those in the border counties down to the north Dublin area go to Newry to do their weekly shopping, squeezing southern businesses even more.

Nice one Brian.