EU - ministers fail to reach deal on reduced VAT

European Union finance ministers failed on Tuesday to strike a deal to avoid a big increase in sales tax on books, meals and home repairs in five EU countries, a diplomat said.  

"There was no agreement," the EU diplomat said.  

Ministers now have only one meeting left, next month, to find agreement on extending the lowered value-added tax (VAT) rates to avoid hikes from January.  

The bloc's executive European Commission has triggered a review of all the reduced rates of VAT the member states levy.  

The Commission wants a more streamlined system of reduced rates to enter into force in 2010 but EU states are loathe to scrap lowered rates popular with electorates.  

Reduced rates in the Czech Republic, Cyprus, Malta, Poland and Slovenia expire at the end of this year, as agreed under their EU accession treaties.  

The Commission has proposed they be extended to the end of 2010, by which time it wants a more rationalised EU-wide system of reduced rates to come into force. The three-year extension would avoid a politically tricky situation whereby the five states have to raise VAT rates at least to the minimum 15 percent, while consumers in other states would continue to enjoy lower rates until 2010.  

The reduced rates vary from 5 percent on construction work for homes in the Czech Republic, to 5 percent on restaurant services in Malta and VAT as deductible on some books and specialist periodicals in Poland. 

Denmark and Germany are opposed, saying the expiry of the lowered VAT rates in the five states was laid down in their accession treaties and that these should not be reopened.  

France has said it would back a shorter extension to June 30, 2009 in return for the Commission proposing it be given the right to lower VAT on restaurant meals, a long-standing demand. (Reporting by Huw Jones; Editing by Dale Hudson)