Although VAT has been embraced by several eu countries including the UK, rates and classifications have not been completely standardized and the European Commission has now embarked on an exercise of bringing eu countries under a common vat umbrella with suitable vat directive. The directive aims to establish a common system of vat across all European Union member vat countries so as to reduce conflicts caused by varying vat rates and difference in policies.
Although vat has been embraced by several eu countries including the UK, rates and classifications have not been completely standardized and the European Commission has now embarked on an exercise of bringing eu countries under a common vat umbrella with suitable vat directive. The directive aims to establish a common system of vat across all European Union member vat countries so as to reduce conflicts caused by varying vat rates and difference in policies.
This directive covers several aspects other than simply establishing common vat rates. The directive has already instructed member states to charge a standard vat rate of not less than 15% on most goods and services. The reduced rates too have been set at not less than 5% on certain goods and services. However, member states can consult the vat committee to apply special reduced vat rates, apply zero vat rate or even exempt certain goods and services from any vat tax at all. These goods and services are usually related to socio-economic sectors such as hospitals, schools, banking, insurance, postage stamps, and even gambling.
The vat directive also seeks to standardize vat refunds for vat amounts already paid in a eu vat country before it is exported to another vat enabled country where vat is charged again. These vat refunds can be applied for and received through a specific electronic procedure. For example, if a vat registered trader in the UK has imported certain goods from Sweden where vat has already been paid then the trader can apply for a vat refund through HM Revenue and Customs department or hmrc vat, which handles collection and monitoring of customs, excise and vat duties in the UK. The application will then be forwarded to Sweden and the trader will then need to submit all relevant documents electronically to the vat department of Sweden before receiving a vat refund in the same manner depending on the specifications filled in the vat reclaim form.
These vat directives also cover goods and services taken from one eu country to another by travelers and other individuals. The directive also tries to plug tax leaks by bringing in specific rules for intra-community transactions for both suppliers and buyers. The latest directive is basically a recast of the original sixth directive that heralded in the common system of vat in eu countries, although it tries to further fine-tune the system of vat. Several eu countries including Greece and the UK have just increased or have planned to increase vat rates in the near future. Other countries too might follow suit in a bid to reduce the disparity between vat rates. There have also been several amendments to these directives as the eu tries to establish a common code of vat between all member eu countries that follow vat.
Vat aims to collect tax only from the final consumer instead of allowing double-taxation to raise prices of goods and services in an unwanted manner. However, since there are several eu countries that have adopted vat it is necessary for the European Commission to issue a common vat directive that seeks to codify all provisions governing vat on all member eu countries that have adopted vat.