VAT as a Policy Instrument in the European Union A legal framework for pursuing policy objectives in VAT law

Abstract

The desire to raise revenue efficiently, and in some cases, change behaviour and economic activity are at the heart of a shift towards the use and incidence of consumption taxes’. Although VAT is mainly a source of state and EU revenue, VAT law is increasingly used as an instrument to pursue various policy objectives. Due to its design as an indirect tax, however, VAT is subject to limitations regarding its ability to achieve both distributional and behavioural effects. The aim of this paper is to identify the legal framework for pursuing policy objectives in VAT law from a European Union law perspective. Since the actual effects of policy instruments within VAT law depend on extra-legal circumstances, such as economic and behavioural factors, this paper contributes to the discussion on evidence-based legislative processes. It concludes with suggestions for the legislator regarding both a suitability assessment ex ante as well as an evaluation ex post. VAT, policy instrument, VAT exemptions, reduced VAT rate, behavioural effects, distributional effects, ability-to-pay, indirect tax, principle of equal treatment, policy goals