The European Commission this evening proposed the creation of a European Union sales tax from 2014, part of efforts to enable it to raise its own finances instead of depending on member states.
The proposal calls for a new VAT that will be levied across the 27-nation bloc, with a fixed percentage raised by governments and transferred directly to the EU during the next seven-year budget, from 2014 to 2020.
The proposal needs approval of all member states to be realised.
The Commission proposed to boost its budget by five percent and also slap a tax on financial transactions.
Austerity-driven Britain immediately slammed the EU proposals as unrealistic. France and Germany had previously also cautioned against any increase in European Union spending.
The Commission said it was proposing a "Tobin" tax on financial transactions in Europe, which sceptics say could send financial houses running to relocate elsewhere. (Malta is one of the EU's main financial centres)
"A tax on financial transactions only makes sense if it's global," said a diplomat who asked to remain anonymous.
Such ground-breaking changes in the union require unanimous support from the bloc's 27 states before taking effect. And as one European diplomat put it: "There's very little chance of unanimous backing for these suggestions."
At the core of the proposals is a bid to reduce the lion's share paid into the budget by member states, who currently account for 76 percent of the €140 billion budget.
The remainder is funded through its own resources such as customs tariffs at the EU border, a portion of VAT gathered by member states, and taxes paid by EU civil servants.
Under its new proposals, Brussels wants to reverse the arithmetic to raise around 50 percent of the EU budget through its own resources by the end of the next seven-year budget, in 2020, including through the tax on financial transactions.
The commission also hopes to rethink the whopping paybacks made each year to certain member states -- including a huge rebate to London negotiated decades back by Margaret Thatcher.
A one-size-fits-all system of rebate was under consideration, an EU source said.
"We will not back proposals that leave us worse off," said a diplomat from one of the five countries which receives a rebate. "We won't lose out and we haven't received assurances to the contrary."
Member states too are likely to fight off change to avoid any loss of control over the budget.
"We will fight EU taxes all the way, both on grounds of principle and because we cannot afford them," said the head of the European Conservatives and Reformists in the EU parliament, Jan Zahradil.
If we grant the EU tax-raising powers then it becomes tantamount to a state," he added in a statement. "The EU risks becoming a runaway train with no national government accountability to slam on the brake."