EU: To Reduce VAT Rates To Support Small And Medium Enterprises

At the beginning of July, the European Commission put forward a proposal to amend the existing VAT laws, allowing all Member States to impose low VAT rates on some labor-intensive industries and service industries with regional characteristics, so as to lighten the burden on consumers, improve the economic environment for the development of SMEs, and promote employment, while further simplifying the EU's VAT system.

European Commission officials said that due to the current global inflation, the small and medium-sized enterprises and consumers in Europe have felt great pressure. The revision of the VAT law will help to alleviate this pressure.

Focus on supporting the service industry at a low tide.

On July 6th, Kovac Laszlo, member of the European Commission on tax and tariff issues, introduced the main contents of the proposal at the EU meeting.

The proposal proposes that for some service industries and production sectors which are closely related to daily life needs, member states may choose to raise their VAT rates to a minimum of 5%, so as to distinguish them from the 15% to 25% VAT standard rates that EU Member States must implement.

The proposed commodities and services included in the tax deduction list include: all residential services, including housing construction and energy supply, renovation, repair and cleaning, restaurant and catering services, but not with low alcohol consumption, such as home care services such as taking care of the elderly, domestic laundry services, such as cleaning and ironing, personal care services such as beauty and hairdressing, gardening and landscaping services, small consumer repair services, such as bicycles, tricycle repairs, shoes repair, repair tables, computer maintenance, clothing repair, etc., manufacture of all personal hygiene products, manufacture of medical equipment for disabled persons, etc.

The European Commission also said that by reducing the VAT rate and improving the economic environment of small and medium-sized enterprises, the EU is one of the strategies to stimulate economic growth and promote employment.

Data show that in June this year, an important sign of the rise and fall of the EU service industry - the euro area service industry purchasing managers' index was 49.5, which is the first time that the index has fallen below the threshold of 50 in the past 5 years.

Therefore, some analysts believe that the EU's proposal to apply low value-added tax rates to the labor-intensive industries and industries with obvious regional characteristics may be regarded as policy support for the service industry at a low tide.

Some organizations representing small and medium-sized enterprises in the European Union welcomed the proposal.

"The depressed economy has put honest taxpayers at the disadvantage of severe competition," said hade humet, who is responsible for the European SME Federation.

He believes that the proposal will help end the EU's repair of this issue for years, but it is always in the open.

Tina Sommer, chairman of the European Union and international affairs department of the small and medium enterprises alliance, also believes that the EU proposal will give them support in difficult times.

She commented: "as prices rise, such as housing repair, dining out, hairdressing shops and so on have become a luxury behavior, so that businesses in related industries are facing atrophy, these industries will welcome this reform, of course.

Once this proposal is passed, the British government must make good use of this new policy to ensure that our business service industry can get through the downturn of this economic development.

EU's VAT system needs to be simplified

For a long time, in order to avoid a big difference in commodity prices among EU member states due to different tax burden, the European Commission requests that the VAT rates of Member States should not be lower than 15%.

In 1999, the EU Council, through the "sixth value added tax guide", decided to select part of the member countries to carry out the policy of VAT and low tax rate for some labor intensive service industries.

The guidelines initially stipulate that each member state can choose only one or two labor-intensive industries to conduct a low tax rate pilot, with a minimum tax rate of not more than 5%.

In order to achieve the expected goal, the EU Council stipulates that as a pilot industry with low tax rates, 4 requirements must be met: labour intensive industries must be directly faced with consumer services; market competition will not be distorted; the price elasticity of the industry must be very high, i.e., if prices fall, consumer demand will increase.

According to the regulations, the pilot area is strictly restricted to 5 types of industries: first, minor repair and repair services, including bicycles, shoes, leather goods, clothing and household linen fabric repair; two, private residential renovation and decoration; three is cleaning windows and doors; four is housekeeping services; five is beauty and hairdressing services.

Initially, the 9 member countries of Belgium, Greece, Spain, France, Italy, the United Kingdom, Luxemburg, Holland and Portugal were chosen to participate in the pilot projects, each of which chose one or two industries.

The pilot period was initially scheduled for the end of 2002, and was postponed to 2005 by Member States.

Finally, the low tax rate is extended until December 31, 2010.

The low tax rate of value-added tax has brought benefits to the relevant industries in the pilot countries, and this low tax rate has gradually made the EU value-added tax legal system more complicated.

First, the European Commission constantly revised the list of low tax industries.

It is very difficult to determine which products and services are applicable to low tax rates, which involve many aspects of the economic activities of member countries, and are closely related to the historical and cultural traditions of all countries.

For example, France hopes to impose a low value-added tax on regular restaurants in the catering industry. Britain and Ireland hope that children's footwear industry can enjoy a low tax rate, while tulip Township Holland wants low tax policy to expand to the flower industry.

For example, the catering industry, "EU value-added tax sixth guide" in the original regulation, only the fast food industry can be applied to low tax rates, regular restaurants must pay taxes at the standard rate.

After extensive lobbying, it has been added to the list of low tax rates.

Secondly, due to the continuous expansion of the European Union in recent years, there are also some "successors first" situation.

For example, in accordance with the decision to join the European Union, Czech, Cyprus, Malta, Poland and Slovenia were allowed to apply less than 15% VAT rates to certain industries such as labor-intensive service industries and catering industries, such as Cyprus only 5% of the catering industry tax rate.

In this way, the standard rates vary.

In addition, the products and services of low tax rates applied in different countries are quite different, which makes the EU's value-added tax regulations "chaotic", and the same product applies to a country with low tax rates, but not in other countries.

Taking the catering industry as an example, at present, the 11 member states of the European Union, including Italy and Spain, have the right to impose low tax rates because of their previous franchises, while the other 16 members are not eligible for a low tax rate.

"Half of the EU's catering industry is allowed to benefit from low tax rates, while the other half can not benefit from it, which makes no sense."

Kovac Laszlo, the Commissioner of the European Union's taxation affairs, has also criticized the current complex VAT system.

He said that after 2010, there will be a clear policy on low tax rates for labour intensive industries and the same choice for all Member States.

The domestic part of the member is quite different.

It is reported that small and medium-sized enterprises (the number of employees who do not exceed 250 persons) is an important economic entity in the EU's internal market.

At present, there are about 2500 SMEs in the European Union, accounting for 99% of the total number of EU enterprises and 75 million jobs.

In some labor-intensive industries, such as textile, construction, furniture and other industries, small and medium-sized enterprises are particularly concentrated.

Pilot projects with low tax rates have benefited small and medium-sized enterprises involved in related industries.

Based on the current economic situation, the European Commission recommends that all member states impose low value-added tax on some labor-intensive industries.

However, the debates on the VAT coordination between the EU Member States and the various sectors have never stopped. Today, the sensitive topic of the current revision of the VAT rules has aroused controversy among the EU Member States, and almost "how many countries have opinions".

French finance minister Christina Lagarde welcomed the new proposal.

She said, "I am very pleased that the European Commission has listened to our views, and I hope we can persuade our German and Danish friends to agree to this proposal.

The new proposal is reasonable, and it will not disrupt the market and bias certain industries. "

As a country renowned for its cuisine all over the world, France has long appealed to the European Commission to agree to a low value-added tax policy for the catering industry, but it has been fruitless for many years.

In 2002, former French President Chirac promised in his election campaign that the European Commission would agree that France could reduce the value-added tax rate from 19.6% to 5.5% by the government's efforts.

But this commitment has not been fulfilled.

It was not until 2007 when President Sakorzy took part in the presidential election that it was still an unsolved problem.

According to expert estimates, if France's catering industry value-added tax rate to 5.5%, will create 40 thousand or more jobs, the economic pull can not be underestimated.

In the past few years, thousands of restaurant owners in France had carried out various forms of demonstrations in order to fight for low tax rates, which has caused great pressure on the government.

Some of the restaurant owners even thought that the French government acted as a shield against the EU's failure but actually refused to lower the value added tax behind the EU.

But Germany has been cautious about this.

After Laszlo announced the new EU proposal, German finance minister Steinbruck clearly pointed out that Germany could not support such a plan.

It also implies that the Committee has not fully solicited the views of Member States and has not considered it.

Steinbruck said to the media: "we believe that it is meaningless to lower the tax rate before discussing the possible impact of the low value-added tax rate."

He also warned that if the tax rate of these services dropped to 5%, it would reduce his government's tax revenue by at least 3 billion 500 million euros.

However, Steinbruck also said that those countries that do not agree to low tax rates will soon be under pressure, because the former will inevitably face the problem of matching tax rates with neighboring countries.

Although the attitude of the British government is not as polarized as that of France and Germany, most of the service industry associations in China believe that the relevant tax rates in the UK will not change because the government is unwilling to lose tax revenues.

Martin UK KKman, executive vice president of the British service industry association, said: "the UK hotel industry is paying VAT at the 17.5% standard rate now. If it can drop to 5%, even if the money is tight now, the service sector will also benefit greatly, but this may not be achieved because the British government can not afford it."

Formal legislative proposals need to be formed after autumn.

Although this proposal needs the approval of all 27 member states of the European Union, it can be passed. But Laszlo is optimistic about whether the EU finance ministers can adopt this proposal.

He stressed that no country would be forced to introduce a low tax policy.

"We understand that countries are worried about budget deficits, so this is a proposal to retain their options. If a country can't afford it today, they may be able to bear it tomorrow."

Laszlo told the media.

At the same time, the European Commission also believes that tax cuts will not affect competition among industries.

Because there is ample evidence that a unified reduction of VAT in these industries will not distort competition in the EU single market and stimulate economic growth and shift more jobs from the black market economy to the formal economy.

It is reported that France, acting as the EU's rotating presidency since July 1st, is prepared to include this issue in the agenda of the finance ministers' Council in September.

Public opinion believes that France intends to hold the EU's rotating presidency for half a year, and strive to get the matter settled.

Over the past few years, the EC has been trying to reform the existing VAT system.

Since the beginning of last year, the call for simplification of Taxation has been increasing. However, the Commission will neither comprehensively reform the current system nor reconsider the concession granted to Member States in the past.

According to reports, the EU's second and third steps of the study also include the environmentally friendly energy-saving products such as low watt light bulbs, such as DVD, radio, music and films, which have been urged by France and Britain.