VAT incentives in European countries and main reasons for their application

Olena V. Sokolovska

Abstract


The article examines the reasons for applying the reduced VAT rates; we defined two such motives, notably distributional considerations and presence of public and/or merit goods. We also determined that there are some factors influencing on efficiency of reduced VAT rates, notably passing through the lower rate in sales prices, elasticity of demand, which could be considered as main ones. Also these factors include the size of price reduction, signaling effects, product life cycles, level of price reduction, marketing, etc. The indirect influence of reduced VAT rates on economic efficiency appears principally due to cross-border transactions and opportunities to avoid and/or to evade VAT, arising as a result of use of appropriate incentives. Among other factors are rebound effect, innovation and market transformation, free-rider problem, and effects on state budget. We also briefly analyzed both administrative and compliance costs related to the application of reduced VAT rates and main reasons of their occurrence, such as existence of “mixed products”, etc. We examined the data on 28 European countries concerning both standard and reduced VAT rates in 2016. As a result we defined that currently the most common goods and services, covered by VAT incentives in EU countries, are basic foodstuffs; pharmaceutical products; medical equipment for disabled persons; books, newspapers, periodicals; hotel accommodation, restaurants; and public transport, admission to cultural and/or sport events, water supplies.

Keywords


VAT; tax incentives; tax rates; European Union

Full Text:

PDF

References


Vishnevskiy, V.P., Vetkin, A.S., & Vishnevskaya, E.N. (2006) Taxation: theories, problems, solutions. Donetsk: Donetsk National Technical University, the Institute of the Economy of Industry of the NAS of Ukraine [in Russian].

Sokolovs'ka, A.M., Jefymenko, T.I., & Lunina, I.O. (2006). The system of tax privileges in Ukraine in the context of the European experience. Kyiv: Research Financial Institute [in Ukrainian].

Tarangul, L.L. (2012). Budget support and tax incentives for the national economy of Ukraine. Irpin': University of the State Fiscal Service of Ukraine[in Ukrainian].

Ivanov, Ju.B. (2006). Tax aspects of state support of innovative activity of enterprises. In R.M. Nizhegorodtsev (Ed), Materials of the international scientific-practical conference (pp. 114-1170) [in Russian].

Garkushenko, O.M., & Filippova, N.V. (2016). Ways to harmonize VAT rates with European ones: problems and challenges. Econ. promysl., 3(75), 49-73 [in Ukrainian].

Auerbach, A.J. & Hines Jr., J.R. (1988). Investment tax incentives and frequent tax reforms. NBER Working Paper №2492.

Easson, A., & Zolt, E. (2002). Tax incentives. World Bank Institute.

Tanzi, V. (2000). Tax Policy for Emerging Markets: Developing Countries. IMF, WP №00/35. DOI: http://dx.doi.org/10.17310/ntj.2000.2.07.

Holland, D., & Vann, R. (1998) Income Tax Incentives for Investment. Tax Law and Drafting, 2, 986-1020.

Klemm, A. (2009). Causes, Benefits, and Risks of Business Tax Incentives. Washington, D.C.: International Monetary Fund.

Velde, D.W. (2013). Tax, investment and industrial policy. In Taxation and Developing Countries Training Notes. EPS Peaks, pp. 35-40.

European Commission. (2014). A Study on R&D Tax Incentives. Final Report.

United Nations. (2000). Tax Incentives and Foreign Direct Investment A Global Survey. United Nations Conference on Trade and Development (UNCTAD).

United Nations. (2005). State Support Measures for Services: An Exploratory Assessment with Scanty data. United Nations Conference on Trade and Development (UNCTAD).

OECD. (2008). Tax Incentives for Investment: A Global Perspective Experiences in MENA and Non-MENA Countries. In Making Reforms Succeed Moving Forward with the MENA Investment Policy Agenda. OECD Publishing, 316 p.

OECD. (2011). Attractiveness for Innovation: Location Factors for International Investment. OECD Publishing.

Sokolovskaja, E.V. (2014). Types of benefits in terms of their application. In Tax benefits. Theory and practice of application in economics (pp. 183-194). Moscow: JuNITI-DANA [in Russian].

Sokolovska, O., & Sokolovsky, D. (2015). Market and government failures related to the introduction of tax incentives. Economika i sociologiya. 4, 17-26.

EU. (2006). Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax. Official Journal of the European Union L, 347/1.

EU. (2008). Study on reduced VAT applied to goods and services in the Member States of the European Union. Taxation Papers. European Union, 108 p.

European Commission. (2008). The use of differential VAT rates to promote changes in consumption and innovation. Final report, 150 р.

OECD. (2007). The Political Economy of Environmentally Related Taxes.

Aalbers, R., van der Heijden, E., Potters, J., van Soest, D., & Vollebergh, H. (2009). Technology adoption subsidies: An experiment with managers. Energy Economics, 31, 431-442. DOI: http://dx.doi.org/10.1016/j.eneco.2008.12.002.

Cnossen, S. (2009). How Much Tax Coordination in the European Union? International Tax and Public Finance. 10(6), 625-649.

Avalara. (2016). 2016 European Union VAT rates. Retrieved from http://www.vatlive.com/vat-rates/european-vat-rates/eu-vat-rates/.




DOI: https://doi.org/10.15407/econindustry2016.04.041

Refbacks

  • There are currently no refbacks.