Bolkestein delivers Commission’s plan to add VAT to price of stamps

Date: 05/12/02

By Peter Chapman

THE European Commission wants members to slap value-added tax (VAT) onto the price of postage stamps.

Frits Bolkestein, the internal market commissioner, said the move follows concerns that the current VAT exemption for postal services 'gives rise to significant distortion of competition and is therefore no longer appropriate'.

Replying to a written question from German Christian Democrat MEP Markus Ferber, he said the Commission hoped to unveil a directive 'to rectify this situation in early 2003'.

The Commission insists the plan would not necessarily lead to higher prices for stamps and parcel deliveries if post offices pass on to customers the savings they could make by taking advantage of VAT rebates on the cost of their delivery vans, fuel and postal sacks.

But in an attempt to sell the complex reform to sceptical governments which fear a consumer backlash against potentially higher delivery charges, European Voice has learned the Commission will allow a reduced VAT rate of as little as 6% instead of standard rates which currently range up to 25%.

The tax directive had originally been scheduled for last year. But the idea was put on ice because Bolkestein judged it unwise to try to launch controversial tax rules at the same time as he was trying to persuade governments and MEPs to liberalise swathes of the EU's highly protected postal market.

Under the tax plan - which would need unanimous approval of member states - the Commission wants to totally kill off the exemption for VAT currently enjoyed by state-run postal operators. These are a throwback to the days when post operators were all state-owned monopolies. Only Sweden - where post services are fully liberalised - currently has no VAT exemption.

The exemptions create distortions in the market, which often thwart efforts by private mail operators to compete with the public sector. They claim the zero tax-rate gives public delivery firms, such as the UK's Parcel Force and Belgium's EMS Taxipost, a big price advantage in many parts of the market, particularly to final customers - who unlike most companies, cannot claim back VAT.

They also lose out because they must charge VAT on sales to organisations such as universities, banks or insurance companies, likewise barred from claiming back a rebate.

In the new regime, private firms would be on the same footing as their public sector rivals in the increasingly cut-throat parcel and logistics sector, which is already open to full competition.

'We would welcome the proposal,' said Marc van der Horst, EU affairs manager for US operator United Parcel Service (UPS).

'It would help to level the playing field,' added van der Horst, a member of the Brussels-based European Express Association, an industry group lobbying the EU for more competition in postal markets.

But the Commission claims the move would also be good news for public post offices. They would be able to claim back VAT paid on investments in technology instead of passing on the cost to their customers. Nevertheless, MEPs were already lining up to attack the plan this week.

'I don't think it is a good idea at all,' said British socialist Brian Simpson. 'To me it is a tax on an essential public service,' added the deputy, who is postal affairs spokesman for his group.

The European Commission wants Member States to slap value-added tax (VAT) onto the price of postage stamps.