VAT indicators

Under the current VAT system defined in the Sixth VAT Directive, Member States are required to have a single VAT rate of at least 15% and may have a maximum of two reduced VAT rates set no lower than 5%. Annex H of the 6 Directive outlines the list of the goods and services to which reduced rates could apply. However, this basic structure which applies to all Member States is complicated by the numerous individual temporary derogations granted to particular Member States. Most of these specific rates (zero rate, super reduced rates, parking rate and so on) are to be found under the title XVI Transitional provisions Article 28 of the 6 Directive and most have been granted until the entry into force of the "definitive system" of VAT based on taxation in the Member State of origin. The aim of this paper is to shed some light on the application of the current VAT system to both VAT bases and rates among Member States. For the VAT bases, our indicators demonstrate the share of the base to which a specific VAT rate applies relative to the whole taxable base. For the VAT rates, focusing on the statutory standard VAT rate is not satisfactory. To take into account the existence of different VAT rates, we compute implicit VAT rates. These implicit VAT rates give an indication on the VAT burden. Our analysis shows that the standard VAT rate is far from applicable to the whole taxable base. In the year 2000, on average for the EU-15, 69% of the VAT taxable transactions value was taxed at the standard VAT rate. Moreover for some Member States, only around half of the taxable transactions were actually taxed at the standard VAT rate. Therefore, non-standard VAT rates are not the exception as they should be. Taking into account all VAT rates in force gives us an implicit VAT rate that is up to 30% lower than the standard rate in force in the Member States. In the year 2000, the EU-15 average for the statutory standard VAT rate was 19.4% with a minimum (compulsory) of 15% and a maximum of 25%. In contrast, the implicit VAT rate for the EU-15 was 15.9% with a larger volatility.