EuroACE perspective on sales tax at the World Business Council for Sustainable Development's EU Forum on energy efficiency in buildings (Brussels, July 5 2007)

“There is only one tax which every member state of the European Union must impose, as a condition of membership. That is the sales, or Value Added, tax (VAT). Not only must this be imposed, but in addition the exact list of products or services upon which it may be imposed at zero rate, at minimum rate (5%) or at full rate must be agreed by all governments.

“Sadly, the way in which the current VAT Directive is formulated stops governments from introducing tax reductions upon many energy saving measures – whilst at the same time permitting the lowest rate to be charged upon electricity, natural gas, heating oil or other fuels. Effectively, this means that in many countries there is a tax bias in favour of energy consumption rather than energy conservation.

“There is an option for a short-term derogation, allowing governments to charge 5% VAT on certain energy saving measures in buildings if installed by registered VAT contractors. This was introduced to encourage construction industry employment. But only a minority of member states is even exploiting this measure.

“Even where this derogation is currently in force, it excludes measures which the individual installs himself or herself. It also excludes using the VAT system to encourage installation of more energy efficient alternatives e.g. high efficiency lighting or glazing.

“This distortion must end. We welcome the initiative by UK Prime Minister Gordon Brown to approach tax Commissioner Kovacs, regarding removing this distortion. Before becoming too enthusiastic about the prospects for change, it is as well to recall that it is now over nine years since the Council of Ministers reached the following decision:

“The Council emphasises the importance of actively promoting energy efficiency. In this context, it invites the Commission to consider introducing proposals for differentiation in tax levels for energy-saving products, so as to allow Member States to provide appropriate economic incentives for such products.” 17 June 1998

“It is to be hoped that this time round, the Commission will be prepared to take up the invitation. And remove the VAT bias against energy efficiency”

Andrew Warren, Senior Advisor