Don’t tax public services: citizens need them!

28 Feb 2014, keywords :

The European Commission is in the midst of reviewing current VAT rules on the public sector. In answering to a Commission consultation, CESI is clear that simplification of regulation can in no way be at the expense of the quality of public services, nor should it put an additional financial burden on users. CESI equally strongly opposes any reform which has a negative impact on public employment, especially in times where job creation is lagging behind.

Don’t tax public services: citizens need them!

In 2011, the European Commission launched a debate to question the appropriateness of VAT treatment of public bodies and the exemptions which have been deemed in the public interest for over 30 years. The review and possible revision of VAT rules on the public sector has been deemed a priority for the Commission’s work in creating a ‘simpler, more efficient and more robust VAT system in the EU’.

Where it can foster greater tax cooperation amongst European administrations and where tax fraud and tax evasion can be more easily fought, simplification of legislation is welcomed by CESI. However, there is no trade off when it comes to specific missions of the public bodies. The new proposed rules cannot come into force at the expense of the most vulnerable taxpayers, namely salaried workers.

With this in mind, CESI is firmly opposed to revising tax exemption for public bodies listed in the VAT Directive.

The exemption is also in line with the Treaties’ Protocol 26 on service of general interest, including the guarantee of high levels of quality, safety and affordability. Now more than ever, in the current economic climate, the provision of high quality public services needs to be maintained, if not built upon, in order to protect the most vulnerable taxpayers.

All reform scenarios proposed by the European Commission in the consultation imply a negative impact on public employment. The proposals also question the ability of public authorities to define their competences or lead to a price increase for users of public service, resulting in an additional indirect tax for households.

CESI questions the European Commission’s persistent obsession with favouring the outsourcing of services of general interest to the private sector. These services have played a crucial stabilising role for the economy throughout the crisis. Services of general interest represent a cornerstone of the European social model – a cornerstone that not only CESI believes in, but European citizens too.

The consultation is ongoing with a closing date of 25 April 2014. The European Commission will then publish an impact assessment with a view to proposing legislation.

The publication of CESI’s contribution before the closing date marks a commitment to fighting reforms which harm the most vulnerable and a commitment to raising awareness of the damaging impact that overthrowing VAT exemptions will have on users and on public services.

CESI’s contribution to the Review of existing VAT legislation on public bodies and tax exemptions in the public interest can be read here. The contribution is also available in French.