EU plans tax cut for restaurants and hairdressers

A new raft of services including catering, hairdressing and housing could qualify for reduced VAT rates, the European Commission proposed today.

Some of the 27 EU countries have already gained exemptions from the full rate on various services until 2010, but the new proposal seeks to grant all states the same conditions.

The EU executive hopes it will provide a boost to the services concerned and - by only having to pay reduced instead of full rates – fuel economic growth.

The minimum standard rate of VAT throughout the EU is 15%, with a 17.5% standard rate applied in the UK.

Under the proposal, which needs unanimous backing from all 27 EU governments, countries would be allowed to levy reduced rates – as low as 5% – on all restaurant services with the exception of alcoholic drinks sales; construction, renovation and maintenance of housing; bike, shoe, computer and other repairs; and all domestic and personal care services.

In particular, France has lobbied for lower rates on restaurant services, which currently fall into the reduced-rate category in 11 countries.

“There’s no reason why restaurant services, for example, should be allowed to benefit from a reduced rate in one half of the EU and not the other half,” EU Taxation Commissioner Laszlo Kovacs said.

Governments usually charge VAT to all customers in the supply chain, offering refunds to business-to-business buyers. VAT is a major source of revenue for both national budgets and the EU budget.