After lengthy discussions, finance ministers from the 27-nation European Union on Tuesday forged a agreement to allow governments to lower value-added tax (VAT) on labor-intensive services.
The ministers agreed at their monthly meeting that services, including restaurant, homecare, repair business, could be subject to reduced VAT rates.
"...after lengthy discussions, we have reached a political agreement on reduced rates of VAT in certain sectors," Czech Finance Minister Miroslav Kalousek, whose country holds the EU's rotating presidency, told a press conference.
EU Taxation Commissioner Laszlo Kovacs said at the same press conference that the agreement "will grant more flexibility to member states, as the reduced rates are optional, rather than an obligation."
He noted that under the current "unfair" arrangement, 11 member rates are allowed to apply such reduced rates, while the remaining16 are not allowed to do so.
But Kovacs said that deal did not cover reduced taxes on energy and environmentally-friendly products.
"It was evident from today's discussions that a large number of member states ... do not want further extensions of reduced VAT rates," Kovacs said.
The agreement came after Germany, Sweden and Malta softened opposition, ending long-time brows over the issue.
Germany has long been unconvinced by the proposal to streamline and make permanent a system of reduced rates that expires in 2010.
"We see no advantage in reduced VAT tax rates," German Finance Minister Peer Steinbrueck said here on Tuesday before meeting his EU colleagues.
"But nevertheless we try to be helpful, but only to a very limited extent," he said, adding that his government won't reduce VAT rates in Germany.
France preferred rates below the standard 15 percent on restaurant meals to fulfil an election pledge by President Nicolas Sarkozy, who has pushed for the tax to be cut in France to 5.5 percent from 19.6 percent.
Goods and services sold in the EU are normally levied a rate of at least 15 percent, but member states can apply reduced rates in certain cases.
The discussion was extremely difficult as taxation matters require unanimity by all 27 members of the EU.
The agreement will be finalized by EU leaders at their March 19-20 summit in Brussels.
Ministers also agreed to maintain reduced rates on all types of books. Malta was allowed to maintain a zero VAT rate on food while Portugal and Cyprus were also granted a number of exceptions.
Lowering VAT was meant to boost economic growth and create more jobs amid worsening financial and economic crisis.