The Lithuanian Free Market Institute (hereinafter – LFMI) has examined the proposal for a Council Directive amending Directive 2006/112/EC on the Common system of value added tax as regards the rules governing the application of VAT rates and submitted a response to an open public consultation and a policy paper on the reform of VAT rates.
In its policy paper LFMI concluded that:
- the abolition of the standard rate with a minimum of 15% together with more freedom on the number of reduced rates and their level would contribute to the free movement of goods and services in the EU;
- possibility to set statutory VAT rate below 15% for different goods and services may lead to lower effective VAT rates in various Member States;
- greater autonomy on setting VAT rates would contribute to the greater subsidiarity in the EU and may be welcomed by the public, which, in the current light of the growing Euroscepticism views tax harmonization as a breach of EU subsidiarity principle;
and put forward the following recommendations:
- the European Commission should work to preserve the highest degree of tax competition between Member States.
- high-tax EU Member States advocating tax harmonisation should take practical steps towards harmonisation by aligning their tax systems with those tax regimes that are the most conducive to economic growth.
- the European Commission should further develop the proposal to remove the standard rate with a minimum of 15% and to abolish the list of goods and services subject to reduced rate, granting countries more freedom on the number of reduced rates and their level.
LFMI’s policy paper on the reform of VAT rates is available for download here.