Fabian Demicoli

Review of Existing Legislation on Vat Reduced Rates

GRTU Presents Position Paper – GRTU has this week presented its
Position Paper on the Review of Existing Legislation on Vat Reduced Rates and
requested that it would be taken into consideration when drafting Malta's
position.GRTU welcomes the initiative from the
European Commission to launch a consultation on the reduced VAT rates.

As GRTU
has many members that supply goods and services which fall under both standard
VAT rates and reduced VAT rates, we would like to react in a general sense to
this consultation paper.

 

Step-by-Step
Approach

In a global approach of a VAT rates'
harmonisation GRTU suggests a thorough revision of the annex on reduced VAT
rates. In the ideal VAT world, there, in the long run, should be one EU VAT
system with harmonised rules and without borders between member states, one VAT
administration and one VAT return for all transactions within the single
market. Instead of 27 sets of VAT-rates, there would only be one VAT rate. From
a purely technical point of view, this would make the EU VAT system simpler,
more robust and more efficient. However, this ideal world does not yet exist
and the road to the single market EU VAT system is very long and winding.
Therefore, for the time being, GRTU reiterates its proposal to improve the
current system in a step-by-step approach.

 

Economic
Crisis

Needless to say, however, the topic
of reduced VAT rates, is and will remain very sensitive. Despite the undeniable
necessity of a sound consolidation of national households, purchasing power
needs to be strengthened as an effective tool to fight the current economic
crisis in the short and medium-term. Any additional burden on consumption by
raising the regular or the reduced VAT rates would jeopardise Europe's
move towards sustainable growth.

 

Outlook

Currently, the decision-making power
to apply reduced VAT rates is at the level of the individual Member State.
The Member States will not give up this autonomy. Moreover, a lot of businesses
in the ‘reduced rates-businesses' (and not only limited to those in the border
areas) will be very reluctant to accept any abolition of the reduced VAT rates,
even though it might be beneficial to them in the long term. For the time
being, it should therefore also be considered to keep this autonomy at the
level of the Member States.

GRTU is of the opinion that it would
still be worthwhile for the European Commission to investigate whether further
improvements can be made as a next step to the harmonised EU VAT system,
keeping in mind the budgetary/economic, the political and, not least, the
psychological impact.

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