Bolkestein U-turn over VAT on stamps

Date: 22/02/01

By Peter Chapman

A EUROPEAN Commission plan to slap value-added tax on a raft of postal services has been put on ice for fear that the resulting price hikes could hurt efforts to liberalise the sector.

Internal market chief Frits Bolkestein announced last year that he would unveil a proposal to plug a hole in the EU's tax system that forces private sector firms to charge customers VAT from which public post offices and their affiliates are exempt. But Commission aides now believe the plan - which could also lead to an unprecedented tax on stamps - could be too hot for many governments to handle.

Several member states are already grappling with Bolkestein's proposals to open up a chunk of the mail market that is currently reserved for monopoly state run post offices.

Liberal member states such as the Netherlands and Germany are keen to make all deliveries of mail weighing more than 50 grams open to competition. But others, such as France, Belgium and Italy, only want to liberalise the market for letters above 150 grams, fearing that price competition would cause job losses and jeopardise loss-making rural deliveries. The UK is avoiding taking a formal position altogether until after May's general election.

The situation is so delicate in the Council of Ministers that Bolkestein supporters fear a VAT proposal at the same time could scare off member states that might otherwise join the pro-liberalisation camp.

"The one thing we started last year is already proving difficult to swallow," admitted a political advisor to the Commissioner. "We would like to look at the feasible rather than try to do everything at the same time... We do not want to press too much."

But industry groups that claim they are victims of the VAT distortions want the Commission to press ahead. "We may understand the political rationale but we hope for a quick decision," said Roland Steisel, director of legal affairs with parcel firm DHL.

Steisel says the current regime harms private sector operators in the parcel and express delivery sector. He says private sector operators must charge VAT when they sell services to customers that are not allowed to claim it back. This includes banks, insurance companies, universities, public bodies and private consumers.

A European Commission plan to slap value-added tax on a raft of postal services has been put on ice for fear that the resulting price hikes could hurt efforts to liberalise the sector.