Article from 2022
- Introduction of Flexible VAT Rates:
- Directive 2022/542 allows Member States to apply super reduced (0%-5%) and zero VAT rates to 7 categories of goods and services, while maintaining reduced rates for up to 24 categories, harmonizing VAT across the EU.
- Alignment with the Green New Deal:
- Member States can apply reduced VAT rates to environmentally friendly goods, such as solar panels and renewable energy sources, while phasing out preferential VAT for environmentally harmful supplies by 2030-2032.
- Two-Pronged Green Approach:
- Encourages greener consumer choices by using VAT rate adjustments to favor environmentally friendly supplies and discourage harmful ones, aiming to accelerate decarbonization and improve access to green energy.
- Challenges in Passing VAT Reductions to Consumers:
- Studies indicate that VAT reductions are often not fully passed to consumers, questioning the effectiveness of these measures for promoting green products compared to VAT increases, which are more consistently reflected in prices.
- Economic and Social Considerations:
- VAT reductions may not effectively target less-affluent households and could lead to high costs for Member States amidst economic challenges, suggesting that careful cost-benefit analysis is needed before implementing such measures.
Source Kluwertaxblog
