The Institute of Directors has today voiced serious concerns at
the European Commission's Green Paper on the future of VAT.
In particular, it fears that the Green Paper heralds an attempt
by the Commission to allow certain areas of VAT regulation to be
decided by majority voting and to eliminate certain reduced rates
of VAT that apply in the UK.
Among the proposals advanced by the EU are the abolition of zero
rating for passenger transport, thereby adding 20 per cent VAT to
all bus, tube, train and plane journeys, and enabling the European
Commission to make directly enforceable VAT legislation that will
be binding on the UK and all other Member States.
The IoD says zero VAT rates must not be removed and UK tax
affairs should not be determined by others.
In its response to the proposals, the Institute states: "We are
told by the Commission that VAT is 'not' a tax on businesses. But
any increases in VAT reduce sales, directly harming businesses and
their employees. VAT may technically be paid by consumers, with
businesses only acting as a conduit for the money. But that ignores
the economic reality. We are concerned that the Commission does not
understand these basic concepts.
"On the positive side, there is a drive to reduce fraud and to
reduce administrative burdens. The IoD supports that agenda."
John Rider, West Midlands chairman, commented: "It is sensible
for the Commission to stand back and take a long, hard look at the
way in which VAT operates. It is a massive burden on businesses,
and prone to fraud, so improvements are always welcome. But we must
beware of any assault on national tax powers, or of any tendency to
assume that the man in Brussels knows best. We hope that the
Government will resist many of these proposals.
"We don't want taxation by the back door - it should be up to
our Government to decide on tax increases. And that is particularly
pertinent given the potential inflationary impact of putting VAT on
passenger transport."
The Commission maintains the changes would produce a simpler,
more robust and efficient VAT system.