ALL EUROPEAN Union member states would be allowed to levy lower value-added tax rates on a host of services from haircuts to restaurant meals under proposals published by the European Commission yesterday.
At present, 18 of the 27 member states, including Ireland, have special permission to levy Vat rates below the 15 per cent standard level on a variety of labour-intensive local services, but their right to do so is due to expire in 2010.
EU Tax Commissioner Laszlo Kovacs is seeking to replace this patchwork of temporary permissions with a coherent, permanent set of rules under which all countries would be able to levy reduced rates on the same goods and services. Studies showed that such rights would not be likely to distort competition or harm the bloc's internal market, the Commission said. Unanimity will be needed among EU states to adopt Mr Kovacs' draft law but Germany has often said it opposes reduced rates. Denmark is also reluctant.
Mr Kovacs was optimistic finance ministers could adopt the proposal by mid-2009 for it to come into effect in 2011.
"Because of budget deficits, it should remain optional so if a country can't afford it today they may be able to afford it tomorrow," Mr Kovacs said.
Under the proposals, states would be allowed to levy a minimum rate of Vat of 5 per cent on the following:
• the whole housing sector, construction and supply, with any reference to social policy deleted. It would also include renovation, repairing and cleaning;
• minor repairs to bicycles, tricycles as well as shoe, clothing, computer and watch repairs;
• restaurants/catering services;
• gardening and landscaping;
• general cleaning, ironing, laundering;
• all absorbent hygiene products, including nappies, hairdressing, beauty treatments, medical equipment for the disabled.
The proposal would also have amendments to allow continued reduced rates on some goods such as audio books.
French finance minister Christine Lagarde, whose country currently holds the EU presidency, welcomed the inclusion of an option for reduced rates on restaurant meals - a long-standing demand by France where it is currently not allowed.
Eleven states currently levy reduced rates on meals. Under the proposal restaurants would have to charge at least the standard rate of Vat on alcohol consumed with a meal.
Zero-rated goods, such as children's clothes and shoes, and other goods in Ireland, will be unaffected. Mr Kovacs said after a second package for energy-related issues in the autumn, a third package looking at DVDs, music, films and television and radio broadcasting would follow.
