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EU FMs fail to reach unanimity on VAT reduction
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15:23, September 14, 2008

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European Union finance ministers failed to reach unanimity on Saturday in Nice, France, over whether to cut sales tax in the European Union (EU) for certain services and products.

Nearly half of the 27 members of the EU are against such an initiative, proposed in July by EU commissioner for taxation Laszlo Kovacs.

Kovacs told a press conference after the meeting that the 27 EU members failed to reach consensus on the issue, but said the debate at the informal meeting is helpful to break the deadlock.

Further discussions would be held in the months to come, he added.

Any change of EU tax policies requires consensus among all the EU members.

EU member states can only apply temporarily at present a reduced value-added-tax (VAT) rate as low as 5.0 percent on certain products or services, but some of them have in recent years adopted various temporary reductions for different services.

They are not allowed to apply a VAT rate of lower than 15 percent so to avoid big price differences across the EU.

A leading force in the opposition camp, German Finance Minister Peer Steinbrueck expressed his worry that cutting the current 19 percent to the proposed 7 percent in VAT rate on restaurants and hotels would cause Germany a loss of 3.6 billion euros (5.1 billion U.S. dollars) in revenues.

His Austrian counterpart Wilhelm Molterer also voiced "a certain degree of skepticism" on the initiative.

"We are not certain that reduced (sales tax) rates would be passed on to consumers," Molterer told reporters on the sidelines of the informal meeting of EU finance ministers.

Kovacs proposed in July reducing VAT rates across the EU on certain service sectors such as hotels, restaurants and housing sector to enhance economic activity in labor-intensive service sectors and boost employment.

"There are sectors, like restaurants, which have a very significant capacity to give more jobs. So why not reduce VAT rates for them?" asked Belgian Finance Minister Didier Reynders.

France, the current EU presidency, is also a strong supporter of the initiative of VAT curbing.

EU finance ministers, European Commission representatives and bank presidents attended the two-day meeting in Nice.

After analyzing the sluggish economic situation in Europe and searching for ways to stabilize financial markets on Friday, they focused their discussion Saturday on VAT reduction and bank supervision.

Source: Xinhua

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