VAT gimmick II

Anyone following the recent exchange over VAT on education would be forgiven for thinking that, if elected to power, the Malta Labour Party would immediately remove VAT on books, stationery, uniforms, shoes and schoolbags that you could buy from a bookshop, shoe shop or stationery.

Just that a Labour government can do no such thing.

True to style, the MLP is trying to fool us into believing otherwise.

Under EU law, Malta is bound to impose VAT on books, on stationery, on schoolbags, on shoes and on uniforms and it cannot remove it.

So by picking an argument with the Prime Minister over VAT on education, the MLP is misleading the public. Making us all believe that, if elected, it would remove VAT on these items. When it cannot do so.

For what is the point of attacking the Prime Minister on VAT on uniforms and books when it has no intention - and no possibility - of removing it if returned to power?

Unless, of course, the MLP is, once again, trying to take us for a ride.

This brings back vivid memories of the great VAT gimmick when, in 1996, the MLP promised to remove VAT (in much the same way as it now promises to remove the electricity surcharge). And it led everyone to believe that it would remove cash registers. Only to proceed to introduce a mess of a replacement - the notorious CET - at a massive cost for traders, consumers and the entire economy. And, of course, cash registers were there to stay.

Let us take a closer look at EU law on VAT on education and on items such as books and uniforms.

EU law clearly establishes which goods and services are subject to VAT and which goods are exempt. Goods and services that are not specifically exempt are subject to VAT.

Under EU law, educational services benefit from an exemption, that is, they are exempt from the payment of VAT. EU countries must exempt educational services from VAT. They have no choice but to do so.

Specifically, article 13.1(i) of the law (Sixth VAT Directive) exempts from VAT children's or young people's education, school or university education, vocational training or retraining, including the supply of services and of goods closely related thereto.

This clearly demonstrates that the Prime Minister was perfectly correct when he stated that there is no VAT on educational services. But, of course, he was referring to tuition and not to goods that go beyond this.

A number of judgments of the European Court of Justice have expounded on the meaning of the words "services and goods closely related" to education. Basically, they stated that these would only benefit from an exemption if they are actually supplied as ancillary to education, which constitutes the principal service. The court held that goods and services may only be regarded as ancillary to a principal service if they "do not constitute an end in themselves" but are "a means of better enjoying the principal service".

This excludes goods and services which can be used in education but which can also manifestly be used in other areas in their own right as an end in themselves. Such as books, stationery, schoolbags, shoes, uniforms and the like.

On these items VAT must be imposed since, although they are used by students, they are also used by all the rest of us who are not students. It does not make sense - nor is it practical - to do otherwise.

As a result, these items must be charged VAT. And again, there is no discretion. EU countries may not exempt them from VAT.

VAT on uniforms, shoes, bags and stationery must be charged at the standard rate, in our case, at the rate of 18 per cent.

On the other hand, VAT on books may be charged at a reduced rate. Annex H of the law lists the goods and services that may be subject to reduced rates of VAT. Books can be found in this list. This is not a derogation. This is an option that member states may exercise.

It means that in the case of books we can opt to impose a reduced rate - which we did, at the rate of five per cent - rather than the standard rate.

Readers will recall that during accession negotiations, Malta had originally sought to retain an exemption on books (and printed matter in general). At the time, the MLP was too busy crusading against EU membership to bother with negotiations. Malta later dropped this request to focus on a more important exemption - food and pharmaceuticals - which it obtained until January 1, 2010. In the event, it opted to introduce a reduced rate of five per cent on books rather than the standard rate.

So the hullaballoo on VAT on education is, in reality, a sterile debate that will lead nowhere because VAT on the items indicated by the MLP may not be removed.

It is just another ruse, a VAT gimmick, mark II.

This time round the victims are the parents of thousands of schoolchildren who are being led to believe that, if elected, a Labour government would remove VAT on books, uniforms, shoes, schoolbags and stationery.

When it can do no such thing.

Readers who would like to ask questions to be answered in this column can send an e-mail, identifying themselves, to contact@simonbusuttil.eu or through www.simonbusuttil.eu.