Reforming VAT rates in Europe

Within Europe differentiated rate of VAT rates date back to the introduction of VAT itself. Evidence as regards the negative consequences of applying multiple rates has been apparent for some decades. Since the late 1980s, there have been several attempts by the European Commission to amend European rate structures. However, the most recent amendments have increased the level of differentiation, rather than decreased it, with more goods and services being subject to reduced rates in Europe today than even as recently as ten years ago. However, responses to the financial crisis seem to have had the opposite effect. Since 2008, 22 of the 28 EU Member State countries have increased their VAT rates, resulting in a broad convergence of VAT standard rates across the EU around the 21% mark. Furthermore, there has also been a decrease in levels of differentiation with a reduction in number of VAT rates applicable in many Member States, together with various base broadening measures. The latest developments seem to indicate that EU member states may be engaging in an involuntary process of convergence of VAT bases, fuelled by domestic necessities. This research project presents a politically achievable blueprint for the reform of VAT rate structures, which would result in a broader-based, and thus more efficient, VAT.

Rita de la Feria