Select Committee on European Scrutiny Thirty-Fourth Report


3 Value added tax on postal services

(24538)

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.

Legal baseArticle 93 EC; consultation; unanimity
Document originated7 May 2003
Deposited in Parliament19 May 2003
DepartmentHM Customs and Excise
Basis of considerationMinister's letter of 30 September 2003
Previous Committee ReportHC 63-xxiii (2002-03), paragraph 1 (4 June 2003)
To be discussed in CouncilNot known
Committee's assessmentPolitically important
Committee's decisionNot cleared; further information awaited

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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