Business • December 14 2003

Euro-parliament proposes extension of lower VAT rate

By Kurt Sansone
The European Parliament has approved a draft legislative resolution clamouring for the continuation of an experimental system in Member States by which a reduced VAT rate is applied to labour intensive services in a bid to create jobs and curtail the black economy.
The decision, which is not binding because Member States can participate in the experiment voluntarily, comes at a time when Malta is expected to raise its standard VAT rate to 18 per cent.
The European Parliament has also suggested including recorded music, such as CDs and hairdressers in the list of services that may have the reduced VAT rate applied to them.
No part of the EP resolution suggests that the reduced VAT rate should also apply for super yachts. This contrasts with the legal notice published by the Maltese government, which has applied the reduced VAT rate of five per cent on super yachts for the next four months.
The draft resolution presented says that the three-year experiment has not yielded enough information to draw definite conclusions on how successful the experiment was. The rapporteur appointed by the Committee on Economic and Monetary Affairs was Christa Randzio-Plath.
In her analysis she says "data presented to the European Parliament by the industries concerned demonstrate that there has been a significant net job creation."
A report submitted by one Member State stressed the positive effect the measure had on the old buildings renovation sector. "In particular it has benefited employment and has made it possible to reduce illegal working very substantially," the EP rapporteur stated in her assessment.
The reduced VAT rate can be applied to a host of services: the supply and repair of medical equipment, aids, other appliances and electronic equipment and means of transport for disabled people; books, newspapers and periodicals; the supply, construction, renovation, alteration, repair, maintenance and cleaning of housing and listed buildings and monuments; the supply of goods used in the construction, alteration or repair of housing, which have the effect of improving energy efficiency; minor repair services of bicycles, shoes, leather goods, clothing and household linen, as well as, laundry and dry-cleaning services; the supply of goods and services by non profit making organisations or recognised charities; children’s clothing and shoes as well as child car seats.
The draft resolution also suggests the inclusion of hairdressing and recorded music to be applicable for the reduced VAT rate.
Concluding her analysis the rapporteur states: "Now is not the time to make drastic changes for the sake of harmonisation alone. Instead, Member States should be allowed to retain a degree of flexibility to pursue social and cultural policies through indirect taxation."
kurt@newsworksltd.com