Energy-efficient goods could get VAT reduction

The European Commission could propose reducing value-added tax (VAT) rates on energy-efficient household products, according to László Kovács, European commissioner for taxation and customs union.

Kovács said that he had received a letter from Gordon Brown, at that time UK chancellor and as of yesterday (27 June) UK prime minister, suggesting the innovation.

"I was very happy to receive the letter: it was the first time a member state had suggested this idea to me," Kovács told European Voice.

Kovács said that he was weighing up the Brown idea, which could be proposed after publication of a review of existing VAT derogations scheduled for next Wednesday (4 July). The Commission paper will ask member states to suggest future changes to EU legislation on reduced-rate VAT, including a possible extension of the list of exemptions.

A UK diplomat said that Brown had written to Kovács after the spring European Council that saw governments agree ambitious targets for use of renewable energy and reducing greenhouse gas emissions.

"He suggested that one thing to think about, as a way to meet these groundbreaking agreements, would be reduced VAT for energy-efficient products and energy-saving materials," said the diplomat.

"This is not something the UK could do alone," he said. "We would need to get agreement from the other member states."

He said that Brown did not expect a deal "in the near future", and would in the meantime use all the other tools available to tackle greenhouse gas emissions.

In 1999, Brown made car tax in the UK dependent on the vehicle’s carbon dioxide emissions, a policy which Kovács is trying to encourage across the EU to replace registration taxes.

EU tax proposals need unanimous support from the 27 member states in order to become law. A proposal for an EU-wide tax on carbon dioxide emissions in the early 1990s had to be abandoned because of a lack of political support.

But Kovács said he was optimistic that the pressure to tackle climate change would make governments more flexible. "When the last proposal disappeared some years ago, climate change was not an issue," he said.

He stressed that a reduced rate of VAT for household appliances was only one of many ideas likely to be considered following the report, but that it could have the benefit of being easy to sell to the public.

Consumers have so far not supported taxation as a fair way to solve environmental problems. The most recent Eurobarometer opinion poll found that, while 90% of Europeans said the environment should be taken into account when drawing up policies, only 7% were prepared to pay for changes through taxation.

"Reduced VAT rates on household appliances would certainly encourage everyone to take climate change into account," said Kovács. "It would be quite easy to explain and would make the best products cheaper - or at least no more expensive."

Kovács and Stavros Dimas, the European commissioner for the environment, published in March a green paper on using market-based instruments to support environmental policies.

Environment ministers meeting today (28 June) are expected to agree conclusions calling for greater use of economic instruments, as foreseen in the green paper, to encourage the development of clean products.

Ceced, the association of European domestic appliances manufacturers, has been calling for measures to encourage the replacement of older energy-wasteful models. But it argues that the best mechanism is tax credits for producers of energy-efficient appliances. A study carried out for Ceced last year concluded that, in the long run, tax credits would give both manufacturers and consumers greater incentives to upgrade models than reduced VAT or tax rebates.

The European Commission could propose reducing value-added tax (VAT) rates on energy-efficient household products, according to László Kovács, European commissioner for taxation and customs union.