MPs back government’s decision over VAT on postage stamps

The government has seen its controversial decision to refuse to impose VAT on
postage stamps backed by MPs on the Commons European Scrutiny Committee today,
despite mounting pressure from Brussels.

MPs decided to keep the issue under scrutiny, after noting that the European
Commission had not withdrawn the proposal for a draft directive removing the

The European Commission has recommended allowing a reduced VAT rate of 5% for
addressed letters and packets up to 10kg, the application of the tax to postal
operators supplying final delivery services under contract to private operators,
and creating a special tax accounting system for postal operators. It also said
member states were required to make the changes at the end of this year [2006].

Paymaster general Dawn Primarolo told the committee that negotiations on the
directive remain stalled, with no indication that either the present Finish
presidency or the following German presidency will find time for further

The European Commission is challenging the scope of the current mandatory
exemption for supplies made by public postal services other than those necessary
for the discharge of the universal service obligation.

And one private sector domestic mail operator is seeking a judicial review on
a number of VAT issues, including the extent of the exemption.

In the Commons European Scrutiny Committee report, MPs asked ministers to
inform them of any developments over the draft directive, as well as keep
abreast of the Commission’s ‘enquiry’ about the scope of the present exemption
and the judicial review.

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