EC proposes tax reform for growth

VILNIUS - On June 2 the European Commission (EC) adopted recommendations related to budget, employment and other structural reforms that each EU member state should implement in the next 12 to 18 months in order to enhance economic growth, reports ELTA. The recommendations are based on detailed analyses of each country’s situation and provide guidance on how to boost growth, increase competitiveness and create jobs in 2014-2015, said the Commission in a statement.

“If we want to create jobs in Europe, if we want to truly become competitive, then we absolutely need to bring down the cost of work. And taxation is pivotal in that process,” said Algirdas Semeta, European Commissioner on Taxation, Customs, Statistics, Audit and Anti-Fraud.

According to Semeta, the number of unemployed in Europe is too high. The tax wedge on labor in the euro area constitutes 46.5 percent and is significantly higher than in other countries of the Organization for Economic Cooperation and Development (OECD). Tax burden must be reduced, especially for people with low income.
Therefore, we have recommended that Austria, Belgium, Czech Republic, Germany, France, Hungary, Italy, Latvia, Lithuania, Netherlands, Romania and Spain do more to shift taxation away from labor and towards a system that causes less distortion. This should be towards: Pollution, Property and Purchases,” Semeta said.

The commissioner regards environmental taxation as promoting a green economy, which paves the way for new jobs and greater competitiveness. Meanwhile, if implemented in a progressive way, recurrent property taxation is fair and effective. Moreover, extensive economic evidence suggests that consumption taxes can increase revenue significantly and not have an impact on economic growth.

“Across the member states, VAT exemptions and reductions not only eat into national income. They also create administrative nightmares for business by complicating the system.
Overall, 11 member states have been recommended to broaden their tax base for greater tax efficiency. “Let me be clear here. This does not mean that the standard rate must be pushed up. A tidier and tighter VAT system in some of these countries might even leave space for the standard rate to be reduced,” Semeta noted.

He added that for many businesses the environment would become more favorable, which would increase their competitiveness and investment, and would facilitate compliance with tax rules.
“Therefore, we have called on 16 member states to improve tax governance at home - to facilitate compliance by the honest, and to hamper tax evasion by the less honest,” said Semeta.