EU Considers VAT On Postage Stamps

by Ulrika Lomas, Tax-News.com, Brussels

08 May 2003

In an attempt to level the playing field between national post services and private courier firms, the European Union is considering a proposal to levy VAT (Value Added Tax) on the cost of stamps.

At present, national postal carriers such as the Royal Mail in the UK, and Ireland's An Post are exempt from the scope of the tax. However, the EU Commission believes that this puts their commercial rivals at a competitive disadvantage, as they are obliged to charge the tax to their customers.

If adopted, this proposal could mean that the cost of a first class stamp in the UK might rise by nearly 5p to 33p, if the Royal Mail was made to charge the full 17.5% levy on its stamps. An Post meanwhile, claims that postage costs could potentially rise by 21% and force the price of a standard stamp from 41 cents to 49 cents.

However, the EU competition Commissioner Fritz Bolkestein has denied that the measure would result in significantly higher postage costs for the consumer, arguing that the national postal services will be able to claim back the VAT on costs so their overall cost base will be unaffected. Also, the EU Commission has given the national carriers the option to apply a reduced rate of VAT on packages weighing less than 2kg.

Nevertheless, some observers are warning that the proposal will inevitably increase the cost of stamps. Chas Roy-Chowdhury of the Association of Chartered Certified Accountants told BBC News even a small increase in VAT will be felt by consumers:

"I do not think it is good news for the consumer. Even if the reduced rate of VAT was charged at 5%, the increase would be twice the rate of inflation," he observed.

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