Chapter News

Cities and regions welcome modernisation and simplification of VAT rules

Fraud, fragmentation and the complexity of the VAT system are a major challenge especially for border regions and small and medium-sized enterprises (SMEs). Therefore the members of the European Committee of the Regions (CoR) broadly support the European Commission’s move to modernise VAT in the EU through an opinion prepared by Dainis Turlais (LV/ALDE) and adopted during the October plenary.

The action plan on VAT was published by the European Commission in April 2016 and is the first step towards a single EU value added tax (VAT) area in order to tackle fraud and simplify the administrative burden especially for e-commerce and SMEs. The huge level of existing VAT fraud reflects the shortcomings in the current system, says rapporteur Dainis Turlais (LV/ALDE), member of the Riga City Council:

The ‘VAT gap’ between expected revenue and revenue actually collected is estimated at EUR 170 billion. The huge levels of fraud lead to significant losses of revenue for Member States every year. This has a negative impact on public sector budgets, particularly those of local and regional authorities, and their ability to provide quality services. The increasing risk of fraud has not only an economic, but also a political impact. Fraudulent schemes, able to operate for years, create distrust of European citizens towards national and EU institutions. It is therefore essential that banks should also fully cooperate with tax authorities in cases of suspected VAT fraud, certainly within the limits of the applicable data protection legislation.

Speaking about the VAT package for SMEs the local and regional leaders stress that the relevant national institutions should take the responsibility to monitor activities of enterprises, which are operating legally, and this responsibility should not be delegated to counterparties, other enterprises. They furthermore encourage the use of IT tools like voluntary electronic payment systems, which transfer the VAT on people’s purchase to the state budget and the amount minus VAT to the vendor’s account.

Bearing in mind that differences in VAT rules and rates between countries have a particular impact on border regions and SMEs the members of the CoR voted in favour of extending and reviewing the list of goods and services eligible for reduced tax rates as opposed to the abolition of the restricted list. “Giving Member States more leeway would lead to greater differences in rates, distort the single market and impose burdens on businesses and particularly SMEs, which are the basis for employment at regional level “, elaborated Mr. Turlais.

Finally, the CoR calls for representatives of local and regional authorities to be included in consultations on any changes to the VAT system given the direct impact of these decisions on the welfare of the population and stresses the necessity of a territorial impact analysis of proposals to offer greater flexibility in setting VAT rates.

Compliments of the EU Committee of the Regions