European Commission plots action over postal VAT
The European Commission is threatening to take the Government to the European Court of Justice unless it amends the law which allows Royal Mail to be exempt from paying VAT, in a move which could force a huge hike in postal rates.
The postal operator’s rivals have been pushing for a review for months, saying the exemption gives Royal Mail a significant price advantage.
The EC has formally requested that the UK, as well as Germany and Sweden, amends its legislation on the exemption.
The threat is part of EC plans to ensure fair competition between former monopolies and market entrants. The EC has described Royal Mail’s VAT exemption as ‘the single most important obstacle to achieving effective competition in this sector’.
The Commission also claims to have received a number of complaints that the different tax liabilities distort competition and that Royal Mail should be subject to the same tax regulations as its competitors.
Laszlo Kovacs, European Commissioner for Taxation and Customs, says: “The EC, as guardian of the EC Treaties, is obliged to ensure that EU rules are applied in a harmonised manner across the Community.”
A Royal Mail spokesman says: “Royal Mail remains opposed to the imposition of VAT on our postal charges. While the issue of VAT is a matter for the UK Government, we have said that an increase in stamp prices as a result of the imposition of VAT is the last thing we want for any of our customers, particularly charities and small business.”
Royal Mail also questioned the actions of the European Commission in pursuing its VAT exemption, when large parts of the EU will not have fully liberalised postal markets until 2009 at the earliest, under the latest EU timetable. The UK’s postal market was opened up to full competition in January 2006.
Postcomm recently urged the EC to change its VAT framework so that all postal operators can pay a reduced uniformed VAT rate to make the market ‘a level playing field’ for all operators. The independent postal service regulator welcomed UK Mail’s recent move to make it exempt from paying VAT on its downstream access.
