European Officials Vote to Add VAT on Postal Services

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Members of the European Parliament voted yesterday for a European Commission proposal that would add value-added taxes to services and stamps sold by state-run postal organizations across state-run postal services in the European Union's 15 countries, according to reports.

Last month, the parliament's economic committee voted against the proposal, which would lift a VAT exemption of state-run postal services that has been in effect since the 1970s. Currently, only private mail firms charge a VAT of up to 25 percent.

With full liberalization of postal services occurring throughout Europe, it has been argued that government postal services have a competitive advantage against privatized companies. In the United Kingdom, for example, with full liberalization occurring in 2007, a private carrier would be required to charge a VAT of 17.5 percent while Royal Mail would charge nothing.

The EC, however, says the move will benefit state-run postal services by letting them deduct the VATs they pay on fuel. Private operators currently are permitted to deduct these costs, but state-run agencies cannot since they do not charge a VAT.

The EU makes the final decision on tax issues. Yet, while the parliament's view is not binding, insiders said yesterday's vote may pave the way for government approval of the directive.

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