EU executive calls for shake-up over reduced VAT

By Huw Jones

BRUSSELS, July 5 (Reuters) - The European Union's complex system of reduced rates for sales tax needs a shake-up to cut administrative costs for business and revenue collectors, the bloc's tax chief said on Thursday.

EU Tax Commissioner Laszlo Kovacs called for a simplified system from 2010 to replace the patchwork of permanent and temporary derogations given for states to apply a myriad of reduced value-added tax rates.

A study by independent research group Copenhagen Economics for the European Commission found that reduced VAT rates had not overly distorted the bloc's internal market.

But it also found no evidence that reduced rates boosted welfare and jobs significantly -- the justification states have used for VAT lower than the EU standard minimum of 15 percent.

Reduced rates for restaurants could be effective, a finding France will welcome to back its case for lower VAT in that sector.

"The Commission reads these results as confirming some usefulness in applying reduced rates to locally supplied services but only where such measures are very well targeted and specific market conditions are fulfilled," the EU executive said.

In reality, Kovacs would have faced a difficult if not impossible struggle to scrap many of the reduced rates and hit the pockets of the bloc's 490 million citizens.

Over the years, EU states have secured many derogations to apply reduced VAT on often "labour intensive" services such as bicycle repairs and hairdressing for a set period.