Cities & Regions Embraces New VAT Rules

By Claire Ann Austria

Oct 13, 2016 06:00 AM EDT

The culprits brought about by Fraud, fragmentation and the complexity of the VAT system are a major challenge especially for border regions and small and medium-sized enterprises (SMEs). These is already made known by the European Commission. Thus, European Committee of the Regions (CoR) broadly support the European Commission's move to modernise VAT in the EU.

Unto VAT relaxation, the Action Plan on VAT was published by the European Commission in April 2016 and is the first step towards a single EU value added tax (VAT) area in order to tackle fraud and simplify the administrative burden especially for e-commerce and SMEs.

Speaking about the VAT package for SMEs the local and regional leaders stress that the relevant national institutions should take the responsibility to monitor activities of enterprises, which are operating legally, and this responsibility should not be delegated to counterparties, other enterprises. They furthermore encourage the use of IT tools like voluntary electronic payment systems, which transfer the VAT on people's purchase to the state budget and the amount minus VAT to the vendor's account.

As a final ground, the CoR calls for representatives of local and regional authorities to be included in consultations on any changes to the VAT system given the direct impact of these decisions on the welfare of the population and stresses the necessity of a territorial impact analysis of proposals to offer greater flexibility in setting VAT rates.

"The 'VAT gap' between expected revenue and revenue actually collected is estimated at EUR 170 billion. The huge levels of fraud lead to significant losses of revenue for Member States every year. This has a negative impact on public sector budgets, particularly those of local and regional authorities, and their ability to provide quality services. The increasing risk of fraud has not only an economic, but also a political impact. Fraudulent schemes, able to operate for years, create distrust of European citizens towards national and EU institutions. It is therefore essential that banks should also fully cooperate with tax authorities in cases of suspected VAT fraud, certainly within the limits of the applicable data protection legislation." Dainis Turlais (LV/ALDE), member of the Riga City Council exclaimed.

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