Decision on harmonised VAT rates in EU postponed

The EU's finance ministers have unanimously agreed to postpone action on VAT harmonised rates for at least six months.

During the meeting in Brussels, Malta was represented by the acting permanent representative, Tarcisio Zammit.

At their meeting on Tuesday, 24 hours after the government announced an increase in the VAT rate of three percentage points, the EU's finance ministers failed to move closer to a compromise over VAT despite an end-2003 deadline for agreement.

The decision to put off moves for at least six months came in defiance of the Commission's proposals to create a more level playing field for VAT within the EU.

The finance ministers said they would review in the middle of 2004 the Commission's demands to scale back the list of items in member states that qualify for zero or reduced-rate VAT.

The ministers also called on the Commission to prepare "appropriate proposals" to extend reduced VAT for "labour-intensive services", such as housing renovations, for another two years. Preferential VAT treatment for such services was due to expire at the end of 2003 and the list of exemptions needs to be revised or renewed by that date. The final list requires the unanimous backing of all member states in order to become EU law.

A year ago, the EU and Malta reached agreement on the issue of zero VAT rating for food and medicines, by agreeing on a transition period of seven years instead of the five given to Cyprus.

Malta managed to obtain a longer transition period, before the zero rate is removed, than that negotiated with Cyprus, with the right to review it should Ireland and the UK still retain their zero rating on food and medicines by the expiry of the transition period.