DMA backs axing of UK Royal Mail tax break

The DMA (UK) has welcomed Postcomm’s bid to axe Royal Mail’s VAT exemption, calling the privilege out of date and distorting to competition.

However, the trade body admits it can only continue to support the proposals if charities and financial services organisations receive some reimbursement to ensure they are not put at a disadvantage.

The DMA says the historic argument in favour of the exemption, passed as an EU directive in 1977, was that it facilitates a universal postal service – but the market has changed dramatically since then. With more postal operators entering the UK market and paying VAT at 17.5 per cent, competition would be distorted.

David Robottom, director of postal affairs and industry development for the DMA, explains: “If other postal operators charge VAT at 17.5 per cent and Royal Mail remains exempt from such charges, financial services companies and charities, which cannot reclaim VAT, would have no choice but to use Royal Mail. Thus the special privileges would distort competition and are now out of date.”

The DMA supports the EU draft directive proposing a reduced rate of VAT on postal services, as it will ensure no consumer stamp rises and a level playing field for competition.