Europe's SMEs Call For Continuation Of Reduced VAT For Labour Intensive Services

by Ulrika Lomas, Tax-News.com, Brussels

20 January 2006

EU Finance Ministers must stop dithering and agree to a continuation of reduced VAT rates in labour-intensive sectors or risk wreaking havoc on small service providers through a massive overnight increase in the VAT rate, a pan-European lobby group urged this week.

In what it termed a "final appeal" to the small group of Member States which have consistently blocked an agreement to permanently apply the reduced rates to labour intensive services, UEAPME, the European small-and medium-sized business organisation, warned that 200,000 jobs across the EU are at risk if the scheme is discontinued.

"With no legal framework for prolonging the reduced rates, there would be instantaneous rate hikes of up to 15% on 25 January, with resulting price increases of up to 14% overnight," cautioned Hans-Werner Müller, Secretary General of UEAPME.

"This chaotic scenario would be catastrophic for small service providers in the affected sectors and would penalise their customers as well," he added.

Mr Müller also argued that by allowing VAT rates to rise for labour intensive services, the EU would be taking a huge retrograde step in its efforts to combat VAT fraud and the black economy.

“Combating VAT fraud is one of the priorities of the Austrian Presidency and forging an agreement on the crucial issue of reduced rates will be a real yardstick of its ability to deliver on this priority," he observed.

"The reduced VAT scheme has been an effective tool in combating the threat of the shadow economy in labour-intensive sectors. Abruptly imposing massive rate hikes would play into the hands of black market operators and place tax compliant, law-abiding firms at a major disadvantage,” Mr Müller added.

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