- European Council has formulated a proposal to bring down VAT rates on products and services considered beneficial for the environment
- Among the products and services considered for this proposal include solar panels installed in private homes and public buildings
- Once the proposal is formally adopted, it would also ensure member states won’t be able to bring down VAT rates for categories that are not good for the environment
Solar panels installed in private homes and public buildings, electric bicycles and waste recycling services in the European Union (EU) may all cost less soon if the group of countries agrees to a proposal to update its rules on rates of value added tax (VAT), announced the Council of the European Union.
Currently, member states of the EU have to apply a minimum 15% VAT rate for various goods and services, but the rate cannot go lower than 5% on products mentioned in the list of reduced VAT charges in 24 categories. If the Council proposal is implemented, member states will be able to go one step down and choose to apply a 0% rate to a maximum of 7 categories on the list.
The above-mentioned products are part of the council’s list of environmentally friendly goods and services for which reduced rates are allowed with the ultimate aim being benefit of the end consumer and general interest.
The new rules, explained the council, reflect member states’ current needs and the EU’s present policy objectives while ensuring member states are treated equally. It also bars individual nations from lowering VAT on products and services that are harmful for the environment.
Additionally, the VAT directive proposal includes provisions to address possible future crisis and enable member states to respond swiftly to such events including pandemics, natural disasters or humanitarian crisis.
The proposal is expected to be cleared by the EU Parliament post which the Council will formally adopt the directive. The European Commission (EC) has published a FAQ section on the proposal on its website.
Further as the block aims to achieve carbon neutrality by 2050, the Council agreed to phase out reduced VAT rates or exemptions on fossil fuels and other goods that lead to GHG emissions, targeting a date of January 1, 2030. To accommodate small-scale farmers, reduced rates and exemptions for chemical fertilizers and chemical pesticides will end 2 years later, by January 1, 2032.
“Member States will have more flexibility to make their VAT systems reflect national policy choices, while ensuring coherence with common European priorities: the green and digital transitions and of course the protection of public health,” said EC’s Commissioner for Economy, Paolo Gentiloni.
A VAT reduction for solar modules in the EU would come timely as the prices for the heart of a solar system have increased significantly over the course of the year, resulting in many project delays as developers are hoping prices to return to earlier levels sometime in 2022 once the silicon shortage and high logistics prices are overcome.