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Green Products to be Cheaper After EU Changes VAT Rules

European Union finance ministers agreed on Tuesday to change EU rules so that they can cut the Value Added Tax (VAT) on goods and services linked to fighting climate change, health protection and making the EU more ready for the digital age.

At the same time they agreed to phase out by 2030 some of the existing lower VAT rates on fossil fuels or other goods that add to greenhouse gas emissions, to help the 27-nation bloc reach its target of not emitting any carbon dioxide (CO2), in net terms, by 2050.

The EU’s standard minimum VAT rate on all goods and services is 15%, except for a list of exemptions where the reduced VAT rate must be at least 5%. Actual tax rates applied vary between EU countries and between products. Some countries have also agreed special rates for specific products.

The ministers also agreed that reduced VAT rates and exemptions for chemical fertilizers and chemical pesticides would remain in place until January 1, 2032, to give small-scale farmers more time to adapt.

The deal will allow governments to apply lower VAT rates on products and services making the economy more fit for the digital age, like internet access and live streaming of cultural and sports events.

Wary of the experience of the COVID-19 pandemic, the ministers agreed to add to the list of goods enjoying lower VAT rates health protective equipment like face masks and other medical gear and items considered essential for the disabled.

Lower VAT will also be possible on products linked to fighting climate change like bicycles, green heating systems and solar panels installed in private homes and public buildings.

The lower rates will become possible once the European Parliament is consulted on the agreement which could take until March 2022.

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