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European Parliament Members Reject VAT on Postal Services

European Parliament members rejected a European Commission proposal to add value-added taxes to services and stamps sold by state-run postal organizations across the European Union's 15 countries.

The parliament's economic committee voted 16-12 with two abstentions against the plan, which would have lifted a VAT exemption of 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 subject to VAT of 17.5 percent while Royal Mail would charge nothing.

The EC, however, says that the move is being done to help state-run operators be more competitive because under European Union law, state-run groups cannot deduct the VATs that they pay on fuel, vehicles and other expenses since they do not charge a VAT. Private operators are permitted to deduct these costs.

Royal Mail had been a vocal critic of the proposal, arguing that small businesses and charities, many of whom rely on mail for fundraising, would be the hardest hit along with consumers.

Other critics noted that creating a fair structure for state-run and private firms could be achieved by exempting all postal operators from VAT.

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