The European Union's (EU) goal is, in part, to align value-added tax (VAT) with climate goals and targets.
Value Added Tax (VAT) on bicycles may go down in Portugal and in the European Union (EU)but that doesn't mean that two-wheeled vehicles will become more affordable. EU finance ministers have agreed to relax the rules for the application of reduced VAT rates by individual member states on various goods.
It is at the EU level that the basic rules for the application of VAT by each country within the EU are defined. Although each member state can set the VAT rates it applies, there is a requirement for the standard rate to be above 15% and the reduced rate to be at least 5%. In 2018, the European Commission had proposed a reform of VAT rateswhich four years later is given continuity by an agreement between the finance ministers of the various countries, including João Leão from Portugal.
On the table is an update of the rules around reduced rates for "align with EU priorities". "For example, some reduced rates currently allowed by the VAT Directive can have a potentially harmful effect on the environment", says Brussels. That is why bicycles (including electric ones), ecological heating systems, and solar panels installed in private homes and public buildings will be able to be sold at the reduced VAT rate, which in Portugal is 6%.
However, the VAT reduction does not guarantee that prices will go down, since in the case of bicycles, the dealer can maintain the price of the product, thus absorbing the tax relief. In any case, until there are tax reductions, European processes must be followed. The new proposal will be sent to the European Parliament, which will have to develop and approve its final text by March 2022. Once formally adopted by member states, the legislation will come into force 20 days after its publication in the Official Journal of the European Union, allowing member states to apply the new system from that date.
In press releasethe European Commission welcomed the agreement "reached by EU finance ministers to update the existing rules governing value-added tax (VAT) rates applicable to goods and services. These new rules will give governments more flexibility over the rates they can apply and ensure equal treatment between EU member states.".
For Paolo Gentiloni, Commissioner for the Economy, "Today's unanimous agreement to modernise the rules governing VAT rates is excellent news. The result of marathon negotiations, this agreement shows that where there is a will, there is a way - a European way forward. Member States will have more flexibility to make their VAT systems reflect national policy choices, while ensuring consistency with common European priorities: the green and digital transitions and, of course, the protection of public health."
