3 Value added tax on postal services
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9060/03
COM(03) 234
| Draft Council Directive amending Directive 77/388/EEC as regards value added tax on services provided in the postal sector.
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| Legal base | Article 93 EC; consultation; unanimity
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| Document originated | 7 May 2003
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| Deposited in Parliament | 19 May 2003
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| Department | HM Customs and Excise
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| Basis of consideration | Minister's letter of 30 September 2003
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| Previous Committee Report | HC 63-xxiii (2002-03), paragraph 1 (4 June 2003)
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| To be discussed in Council | Not known
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| Committee's assessment | Politically important
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| Committee's decision | Not cleared; further information awaited
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Background
3.1 Directive 77/388/EEC — the Sixth VAT Directive —
provides that supplies made by "public postal services"
are exempt from value added tax (VAT), as are supplies of postage
stamps sold at face value for use for postal services. The present
VAT rules mean that the postal services of the Royal Mail, as
the public postal service provider, are exempt (except for post
to or from destinations outside the EC which is zero-rated).
VAT is chargeable on services provided by other postal operators.
3.2 In May 2003 we considered[3]
a draft Directive which would amend the Sixth VAT Directive so
as to:
- remove the VAT exemption for
public postal services and postage stamps;
- allow an optional reduced rate of VAT for postal
services (excluding express services) relating to addressed letters
and packets no heavier than two kilograms. This would let Member
States, if they so choose, mitigate the impact on prices of removing
the existing exemption;
- amend place of supply and VAT liability rules
for postal services (excluding express services) relating to addressed
letters and packages no heavier than two kilograms and destined
for countries outside the EC. This is to avoid difficulties that
could arise for postal operators from the existing place of supply
rules, which would result in postal services relating to items
for delivery outside the EC being taxed at the zero rate and all
other items being taxed (under the Commission's proposal); at
the standard or optional reduced rate;
- allow Member States to have a special tax accounting
scheme for postal operators. Such schemes would address potential
control and accounting difficulties for postal operators providing,
under the Commission's proposal, a combination of services subject
to standard, reduced and zero VAT rates; and
- provide for taxation of terminal dues - that
is, payments received by postal operators, as sub-contractors,
for delivery of items received from a postal operator outside
the Member State concerned.
3.3 We did not clear the document, pending receipt
of information on:
- the development of the proposal
in negotiations;
- the outcome of the Minister's formal consultation;
and
- a Regulatory Impact Assessment.
The Minister's letter
3.4 The Paymaster General (Dawn Primarolo) writes
now saying that the Italian Presidency has not accorded this matter
priority and little progress is expected on it in the near future.
She notes that some aspects of the draft Directive remain unclear
and that it has a number of optional and variable elements. Nevertheless
the Minister encloses a Regulatory Impact Assessment.
3.5 This Regulatory Impact Assessment notes that
"Accurate and detailed estimates of the potential financial
implications of the proposal for postal operators and customers
are not possible at this time given the number of variables, including
the optional basis of some of the proposed provisions." But
it gives some indication of likely consequences, noting that:
- Royal Mail might be able to
recover VAT sufficient to allow a net price reduction of between
2.1 and 2.6% without affecting its margin;
- on the same assumptions currently exempt customers
able to recover VAT would pay less for postal services, whilst
those unable to do so would pay more; and
- tax revenues could increase by between £34
million and £375 million.
3.6 The Regulatory Impact Assessment also says that
the Government is receiving comments on the draft Directive from
stakeholders and the option of a formal consultation is being
kept open in the light of possible alternative proposals, and
that the effect of the draft Directive on competition in the UK
cannot yet be assessed.
Conclusion
3.7 We are grateful to the Minister for this progress
report and for the Regulatory Impact Assessment. We note that
little progress on negotiating this issue is expected in the near
future.
3.8 We will continue to hold the document under
scrutiny pending information on:
- developments in any negotiations
that do take place; and
- the outcome of any continuing or formal consultations.
3 See headnote. Back
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