ECONOMY

VAT on postal services?

Brussels – The European Commission has proposed introducing value-added tax on postal services, claiming that this would not raise prices. The Commission proposes a reduced VAT rate (5 to 9 percent) on letters and parcels of up to 2 kilos, but leaves it up to individual member states whether to apply this reduced rate or the regular 18 percent rate. The Commission says that with the development of privately operated courier services and the deregulation of the sector, exempting state postal services from VAT, granted about 30 years ago, is no longer tenable, because it distorts competition. Although it would be easy to assume that the imposition of VAT will drive the price of sending letters and parcels up, the Commission maintains that this should not happen as the overall taxation of postal services will remain at the same level. Public services will be able to recover VAT for expenditures such as buying fuel, vehicles and other equipment. At present, they cannot claim the tax back. The measure, the Commission says, will also help companies where postal expenses are important to recover VAT that they will begin paying for postal services. The Commission proposal, first mooted in 2000, must be approved by the 15 member states.