Govt Confirms Request for Extension of Housing VAT Cut
The cabinet confirmed on Thursday Slovenia would lodge a request with the European Commission for an extension of the reduced VAT rate on construction, renovation and maintenance work for residential housing and food preparation.
Slovenia hopes to have extended its transitional period that it obtained for VAT on housing and food preparation as part of its EU accession negotiations, which is scheduled to end this year.
A successful bid by Slovenia will require a change to the EU directive governing VAT, which also includes transitional periods.
If Slovenia's initiative fails, new dwellings and prepared food would have to be sold in 2008 at a VAT rate of 20% and no longer at the reduced rate of 8.5%.
In line with the relevant EU directive, the reduced rate can only be used for welfare housing.
The government believes that ending the transitional period could have a serious impact on inflation and would worsen additionally the social status of people who do not yet own a dwelling.
The government uses similar arguments in defending an extension of the reduced VAT rate for food preparation, claiming that it would increase inflation in Slovenia and most endanger poor people.
When Slovenia was first granted a transitional period, the European Commission assessed that granting such an exception would not have an important impact on the operations of the internal EU market nor that it would be discriminatory.
Slovenia argues that this is also true for an extension to the transitional period.
Slovenia requires the consent of all EU member states to be approved the extension.
Like in other EU members, the renovation, repairs and maintenance of residential housing will meanwhile continue to be subject to a reduced VAT rate, this being the result of an agreement reached by all EU member states after prolonged negotiations in 2006.
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