Stubborn government deficits pushing increases and consolidation in reduced rates
A string of EU member countries are turning to reduced VAT rate rises to help plug spending gaps. Slow growth in economies adds to Euro-currency rule requirements of limiting deficits.
A number of EU states are looking and cutting the number of rates, and reclassifying supplies up the rate ladder:
- Finland January 2025 will up many supplies from 10% to the higher 14% reduced rate following the recent 1.5% VAT rate rise
- Belgium has revived a plan to amalgamate its 6% and 12% in a new 9% with a net rise in tax take
- The Netherlands is shifting hotels and cultural or sporting event entry from 9% to the standard rate in 2026.
- Italy has an early stage plan to reduce from 4 to 3 reduced rates.
The move comes despite the formal introduction of EU reduced VAT rate freedoms from next year (although member states have been apply to adopt the rules since 2022).
The last of the COVID-related reduced rates cuts are now finally unwinding, too. Examples include:
- Polish VAT cut on food is one of the last now reversed this March;
- Estonia reversing its accommodation vat cut; and
- Spain will start phasing out its food rate cut from this October.
Use of Reduced VAT Rates in the EU
EU countries apply reduced VAT rates to specific goods and services to lower the tax burden on essential or socially important items, such as food, medicines, and cultural services. The EU VAT Directive, allows member states to implement reduced rates following the new reduced rate freedoms of 2022. Some examples include:
- France has three reduced VAT rates: 10%, 5.5%, and 2.1%.
- The 10% rate applies to certain restaurants, public transport, and cultural services.
- The 5.5% rate covers basic foodstuffs, books, and energy-efficient equipment.
- The super-reduced 2.1% rate is applied to specific areas such as certain pharmaceutical products, newspapers, and live performances. France also applies reduced rates for housing renovations to promote energy efficiency.
- Spain applies two reduced VAT rates: 10% and 4%.
- The 10% rate is used for a broad range of items, including public transportation, hotels, and certain food and drinks.
- The 4% super-reduced rate applies to basic necessities such as bread, milk, books, newspapers, and some medicines. This structure aims to lower the cost of essential goods and services for Spanish consumers, particularly in the food and publishing sectors.
- Italy has multiple reduced VAT rates: 10%, 5%, and 4%.
- The 10% rate is used for hotel accommodation, some food products, and cultural services like cinema tickets.
- The 5% rate covers specific social services.
- The super-reduced 4% rate is applied to basic goods such as unprocessed food, books, and medical equipment for the disabled. These rates reflect Italy’s focus on reducing VAT for essential services and promoting cultural participation.
- The Netherlands applies a standard VAT rate of 21% and a reduced rate of 9%.
- The 9% reduced rate covers a wide range of essential goods and services, including food, medicines, books, and some labour-intensive services such as hairdressing and minor home repairs. This structure supports affordability in key consumer sectors and services.
- Belgium’s reduced VAT rates are 12% and 6%.
- The 12% rate applies to restaurant services and social housing construction.
- The 6% rate covers basic goods and services such as food, water, pharmaceuticals, newspapers, and some cultural services. These reduced rates are aimed at lowering the cost of daily necessities and supporting public access to culture and healthcare.
- Poland applies reduced VAT rates of 8% and 5%.
- The 8% rate applies to goods and services like hotels, some medical supplies, and construction work.
- The 5% rate is reserved for basic food items, books, and specific agricultural products. Poland’s reduced rates prioritize affordability for essential goods and services, particularly in food and healthcare sectors.
