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Updated EU Rules For VAT Rates Step In The Right Direction

Updated EU rules for VAT rates step in the right direction, the European Sustainable Business Federation, welcomes the European Council’s decision on updated rules for VAT rates as a step in the right direction. 

The phase out of reduced rates or exemptions for environmentally harmful goods such as fossil fuels and chemical pesticides was long overdue. Equally important is the new option for Member States to introduce low VAT rates for solar panels, bicycles and waste treatment. The agreement on new VAT rates rules was announced by Andrej Šircelj, Slovenian Minister for Finance, on 7 December in response to a European Commission proposal to amend EU VAT Directive 2006/112/EC which was adopted by the European Parliament in 2018.

While this finally opens the way to introduce fiscal incentives for three sustainable and circular products and services, stresses the importance of extending this list to many more, including: renewable energy production, repair and maintenance, second-hand goods, Cradle-to-Cradle products, goods with recycled content, and lease or rent with product-return and recycling provisions (e.g. “lease a jeans”). Given the choice between two otherwise equal goods or services, even a moderate VAT difference can effectively nudge consumers to purchase the circular option rather than the linear one. This can alleviate the biggest hurdle for sustainable products and services, which is lack of demand. 

Finally, next to VAT differentiation, also urges the EU and Member States to initiate a tax shift from labor to natural resource use, as advocated by Ex’tax and the European Commission. 

For our full positions on VAT differentiation see here and here.


Image: Slovenian Minister of Finance Andrej Šircelj (right) with European Commissioner for Finance Mairead McGuinness, copyright: European Union

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