EU Commission propose tax hike on postal services
In December 2003 the European Parliament rejected the Commission proposal to remove the VAT exemption for public postal services, however the Commission did not withdraw their Proposal and it has therefore been referred back to the European Parliament Economic and Monetary Affairs Committee.
The Rapporteur Olle Schmidt has now drawn up another report making recommendations for am-endments which he feels will act as a compromise to Members. He is basically accepting that VAT will be charged – to bring about a level playing field – but he feels that his changes could soften the impact and which at the same time will contribute to the efficient running of the internal market.
There are two basic changes that he proposes:
1. The weight limit for the reduced rate for standard mail should be raised from 2kg to 10kg. This would ensure that important mail such as newspapers; weeklies and other parcels attract the reduced rate.
2. The date at which the legislation will come into effect will be 2007 giving plenty of time for member states and postal operators to adjust.
The question of the level playing field comes into effect since private operators are charged the full standard VAT rate whereas public operators are not. The Commission proposal aims to harmonise the rates for all mail over 2kg in weight but accepts that member states could introduce a reduced rate for mail under 2kg.
In addition the Commission claims that were member states to use the reduced rate for mail under 2kg [and presumably the standard rate for mail over 2kg] the impact on consumers would be negligible since as all postal operators will be subject to the VAT regime they will be able to claim back input VAT paid, and therefore lower overall costs.
There is clearly a split between those MEPs who feel that VAT should be charged and that this will develop the level playing field and those not convinced that any increased VAT costs will not be passed on to the consumer. And in any case if the VAT regime is neutral why do it and create all the bureaucracy.
We should recall that those who use the private operator are mainly businesses who in turn can claim the VAT back whereas the individual citizen cannot, since they are not registered under the VAT regime. It will mean that the cost of a stamp could eventually go up. We also have to take into account the agreement by the public postal operators that they will deliver a letter anywhere in their member state for the same price, this might be put in jeopardy.
In the first place we should ask why the “level playing filed” is based on an increase in the VAT rate which will result in a potential increase in costs. Why not agree that the postal services in all member states should be exempt of VAT. Surely we do not need to work on the argument that if it moves it should be taxed. If the Commission wants to introduce a level playing field it can do this. Current holders of the exemption would retain the zero rate and the private operators would have a boost in not having to charge VAT. It would have to be accepted that the private operators would not be able to claim back input VAT although there could be arrangements for them to opt into the VAT regime if they wished.
The other point to bear in mind is that once the public postal services have accepted that their VAT should not be exempt they will never be able to return to that zero rate since they would require EU authorisation – and this they would never get. The reduced rate could apply but that in some subsequent Commission proposal could be placed in danger.
We should remember that the Commission has an overall objective to harmonise VAT at a single rate [currently it is based on a band between 15 – 25%] and abolish all derogations which by implication includes the zero and reduced rates where they apply. What will eventually happen to the reduced rate is a question within this overall objective.
