EU finance chiefs approve accord on Vat for services

European Union finance ministers approved a compromise agreement on value-added taxes for services that will apply the Vat in the country of the customer, rather than of the provider.

Under the agreement endorsed at a meeting today in Brussels, the shift will be phased in over time, with a special provision to ease the pain for Luxembourg.

The Vat, a consumption levy charged on goods and services that is roughly akin to a US- style sales tax, is the only type of tax bound by EU law at rates between 15% and 25%, though countries can exempt or cut rates on select products with approval. Goods already are taxed in the country of the consumer. European Union finance ministers also urged Slovakia to reduce its budget deficit more than planned to help the eastern European nation fight inflation. Slovakia will face higher inflationary pressures should it switch to the euro next year, the ministers said in a report endorsed today at a meeting in Brussels. Accelerating economic growth should prompt the government to counter inflation with tighter fiscal policy, according to the report. Slovakia wants to adopt the euro in January 2009, becoming the second eastern European nation to make the switch after Slovenia. Even with average inflation below the EU limit since August, concern remains that the drop will not be sustainable.

Inflation in Slovakia “would require specific attention,'' EU Monetary Affairs Joaquin Almunia said on Jan 30. “Slovakia is advised to stand ready to adopt a tighter fiscal stance, in particular in view of possible inflationary pressures after the disinflationary effect of past exchange-rate appreciation fades out,'' the ministers said in Tuesday’s report.

Slovak Finance Minister Jan Pociatek has called the government's deficit cuts “sufficient'' this year, though he sees “some room'' for more reductions. The 2007 deficit, he said, accounts for at most 2.3% of gross domestic product, less than the original target of 2.9 %.

The European Commission, the EU's executive arm in Brussels, projects Slovakia will show a 2007 deficit of 2.7 % of GDP, declining to 2.3% this year. EU rules mandate the budget shortfall remain below 3 % of GDP.

Source : Financial Express - Bombay, India, dated 12/02/2008