A proposal to allow EU member states greater flexibility in setting lower VAT rates is being seen as an opportunity to incentivise manufacturers to use recycled materials in their products.
The European Commission has published a package of recommendations which will now go to the Parliament and Council for consultation. If approved before ‘Brexit day’ in March 2019, it would be subsumed into UK law.
Fead, representing national waste groups including the Environmental Services Association, welcomes the proposal that member states can impose reduced or zero VAT rates for selected categories of products, saying this could be used for those made with recycled material.
A number of representative groups in the UK have called for such a strategy.
In 2014, the Environmental Audit Committee concluded: “The Government should introduce differential VAT rates based on life-cycle analysis of the environmental impact or recycled content of products, and tax allowances for businesses that repair goods or promote reuse.”
The Government’s response at that time included: ”There are no specific provisions that allow for actions to encourage the use of recyclable materials and therefore any changes would require amendments in EU law. Such changes would need a proposal introduced by the European Commission and unanimous agreement by all member states. Recent discussion in this area makes it clear that it would not be possible to reach such agreement.”
Member states can currently apply a reduced rate of as low as 5% to two distinct categories of products in their country, while some apply for permission for further reduced rates.
In addition to a standard VAT rate of minimum 15%, the Commission suggests that countries be able to put in place:
- Two separate reduced rates of between 5% and their standard rate
- One exemption from VAT (‘zero rate’)
- One reduced rate between 0% and the reduced rates
“The current, complex list of goods and services to which reduced rates can be applied would be abolished and replaced by a new list of products (such as weapons, alcoholic beverages, gambling and tobacco) to which the standard rate of 15% or above would always be applied.
“To safeguard public revenues, member states will also have to ensure that the weighted average VAT rate is at least 12%.”