Friday, 19 September 2008

For every pound of petrol, 14.29p is controlled by EU’s VAT Directives

All the key industry experts agree that there is a massive injustice in the UK Government’s extortionate taxes on fuel: the UK now pays the most duty and VAT on fuel in Europe. The main fuel taxes (duty and VAT) account for around 55% of the pump price, but it is often the VAT cost which the decision-makers have ceased to question. Whilst the Treasury continues to generate an extra £123million a month in VAT compared to this time last year from drivers, already suffering under the burdens of taxes on petrol, it has agreed to maintain European Union VAT levels which it cannot now renegotiate. The explanation of why decision-makers cease to question the Chancellor’s maintenance of VAT on petrol, even as drivers continue to suffer in paying huge prices at the pumps, is because the root of its control lies with the European Commission. For every pound of petrol, 14.29p [1] is deemed unarguable because the UK Government is locked into deals it has made with the Commission:

  • The French President, Nicolas Sarkozy, who has been at the helm of the EU’s French Presidency, already suggested to the European Commission in May 2008 a cut in VAT on fuel. The Commission warned of the use of tax cuts on fuel and assured, under EU law, that Member States could not apply a VAT rate of less than 15% unless they were able to obtain an exemption, which requires the unlikely unanimous backing from the 27 Member States.
  • The United Kingdom Parliament does not have full control over VAT; the tax system and its levy standards are derived from the European Union.
  • The UK adopted VAT in 1973 as a condition of joining the European Economic Community and it became a replacement for the Purchase Tax and Selective Employment Tax;
    The requirement to harmonise EU Member States’ systems of indirect taxation, through a VAT system, has long been embodied in Directive 77/388/EC, the Sixth VAT Directive, setting standard rate (still a minimum 15%), reduced rates, zero rate and exemptions;
  • Through negotiations, the UK achieved important derogations, particularly its mush disputed right to put some goods into a Zero Rate category under the condition it takes the matters up with the European Commission, who has overall say on the derogations;
  • The European impetus pushing for the modern transfer of taxation systems from transparent direct taxes to indirect taxes are pursued on the basis that the individual can not trace their own costs of contribution.
Worse still, for VAT payments on fuel is that the current view on taxation in the European Commission is that it would prefer Member States to adopt a completely harmonized VAT system with a “more uniform application” and asserts that the maintenance of existing reduced rates are “complicated by a multitude of derogations granted to certain Member States” and so it is working on legislation to harmonize systems in the near future. This would only lead to further fuel rate rises, absorbed through price increases.

Any tax cuts for VAT on fuel have therefore been deemed inappropriate at the European Union level, even during the petrol crisis periods. Does this, then, not convince the existing Prime Minister that we need to renegotiate our position with Europe so that it is clear that Westminster (and not Brussels) controls the taxes which are imposed upon the British people? Put aside the greedy £123million a month Treasury fortune and think about who controls the taxes that are levied upon the people of this country – Brussels or Westminster?

[1] As a % of price of Unleaded petrol, based on approximate VAT cost provided by:

No comments: