The European Commission has launched a wide public consultation on how the EU’s Value Added Tax (VAT) system can be strengthened and improved.

Taxation Commissioner Algirdas Šemeta said: "We need a VAT system for the 21st century: simple, modern and effective. VAT is paid by citizens, collected by businesses and is a main source of revenue for Member States, so everybody has an interest in this tax. I would urge people to make their voices heard in this consultation, so that we can ensure that the future VAT system works better for everyone.”

The European Commission in a statement pointed out that VAT was introduced in the EU more than 40 years ago, at a time when the marketplace looked very different from today. Despite efforts over the years to modernise and simplify the VAT system bit by bit, it was clear that the regime no longer fitted the needs of a service-driven, technology-based, modern economy. T

"he complexity of the current VAT system creates unnecessary costs and burdens for taxpayers and administrations, and obstacles to the Internal Market. Moreover, certain weaknesses within the VAT system leave it vulnerable to fraud and evasion. Therefore, a fundamental review of the VAT system is needed."

The commission explained how VAT is a major source of revenue for Member States (up to 20% of total tax revenue). It can be expected to become even more important as the recession and aging populations affect other revenue sources.

In addition, economic studies showed that consumption taxes were among the most growth-friendly, and a robust VAT system could contribute to economic regeneration in Europe.

"It is therefore of great importance to ensure that the EU’s VAT system is fully-functional and delivering to its full potential."