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This is a highly technical and specialised area and I'm not sure we're equipped to make a significant contribution. To make a meaningful contribution we need to know:

  1. The various VAT rates applied to different goods and services in each member state

  2. The various exemptions and offsets available in each member states - e.g. for small traders, public services, subsistence goods - e.g. fresh foods

  3. The tax collection mechanisms, costs, and compliance costs in each member state - time lapses for settlement, penalties for late settlement etc.

  4. The economic and opportunity costs created by trade distortions caused by variable VAT rates

I suppose our starting position should be an end goal of common rates on common goods and services, common definitions of those goods and services, common collection, compliance and enforcement mechanisms so that basically a company can operate the same VAT compliance systems regardless of where it trades within the EU.

The fraud, avoidance, administration and compliance cost reductions of a common system combined with the economic benefits could probably fund a significant overall reduction in rates or perhaps transition subsidies for those Members where greater difficulties might be experienced during the transition.

Other principles we might want to apply include:

i) Zero rates on basic subsistence foods and services, and fresh produce produced by smaller producers

ii) moderates rates - e.g. 10% on labour intensive services - hotels, restaurants, construction

iii) A higher rate on luxury, carbon energy intensive, discretionary goods and services.

Should we also set a target for the % of the total tax base which should be achieved by VAT, income taxes, capital and property taxes etc.? I.e what degree of progression should be built into the overall system? What about VAT on financial transactions - in the absence of a Tobin tax?

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by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Dec 17th, 2010 at 05:02:25 PM EST

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