Tough VAT regime faced by applicants will ‘hurt families’

Date: 15/02/01

By Laurence Frost

ENLARGEMENT negotiators are coming under fire over their tough stance on value-added tax, which family groups say could cause serious financial hardship in new member countries.

At the centre of the dispute are plans to apply full VAT to 'essentials' such as children's clothes, shoes and nappies, which are sold tax-free or at reduced rates in some current Union states.

The Confederation of Family Organisations in the EU (COFACE) is writing to three European Commissioners to voice concern over the effect the negotiations could have on new EU citizens.

"I'm not sure that all the candidate countries' negotiators are aware of this," said COFACE secretary general William Lay. "It's families who will feel the pressure. Many of them are already in difficult financial straits - we don't want to see their burden increased."

His letter to Enlargement chief Günter Verheugen and fellow Commissioners Frits Bolkestein (Internal Market) and David Byrne (Health and Consumer Protection) will list goods that the group argues should be subject to the 5% reduced rate in the accession countries. These are likely to include children's clothes, nappies, toys and basic hygiene products.

The Commission wants candidate countries to charge their full standard rates of up to 25% on these products, which benefit from reduced or zero-rated VAT in countries such as the UK, Ireland and Luxembourg.

EU officials say the hard line they are taking is an important part of the longer-term drive towards VAT harmonisation.

"Our position is that we want to harmonise rates," said a Commission official. "Every tax is harmful for income - it is not a social measure."

But candidate countries privately condemn the EU's inflexibility over measures that some of its own members have so far refused to adopt. "The Commission has a tough time getting what it wants with member states," said one central European diplomat. "So it's imposing everything it can on the candidates."

Of the five categories of goods and services for which Hungary announced it would be seeking VAT accommodations two years ago, only two - restaurants and heating - remain on the negotiating table.

Some European industry groups also fear a collapse in exports to candidate countries if the EU imposes tougher VAT regimes than those already in place in parts of the Union.

The non-woven textile lobby EDANA claims that the introduction of full VAT rates on nappies alone would increase families' costs by up to 4% in some candidate countries.

"I'm not sure people have realised that joining Europe will actually decrease their spending power," an EDANA spokesman said. "There may be an adverse reaction when they discover the downside of joining the Union."

Enlargement negotiators are coming under fire over their tough stance on value-added tax, which family groups say gould cause serious financial hardship in new member countries. At the centre of the dispute are plans to apply full VAT to 'essentials' such as children's clothes, shoes and nappies, which are sold tax-free or at reduced rates in some current Union states.