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Support for VAT reduction for energy bills gains traction

05:49 21/01/2022

Support for a reduction in VAT on energy is gaining traction in Belgium, with no political parties in the federal government ruling it out so long as it is eventually offset by higher excise duties.

“Exceptional situations require exceptional measures,” finance minister Vincent Van Peteghem said in defence of his proposals to reduce VAT on gas and electricity, according to De Standaard.

Such a reduction is one of multiple measures being considered to help Belgian households cope with an explosion of energy costs, along with subsidies for low-income families and taking an increased share of energy suppliers’ profits and returning it to consumers.

The proposal from Van Peteghem involves two stages, the first of which involves reducing VAT on gas and electricity to 6% from 1 February onwards, then taking additional time to work on “a sensible and sustainable” solution.

That solution appears likely to be an increase in excise duties when energy prices fall again - a scenario which Flemish energy minister Zuhal Demir called unlikely earlier in the week.

“Let’s not fool anybody - with this European policy, the old energy prices will not return,” Demir said in a statement, adding that, “Greenflation is not a figment of our imagination.”

All parties say they are prepared to discuss Van Peteghem’s proposal, even if not all have yet completely abandoned their original positions. The PS and Liberal parties say they still have some concerns, including the feasibility of such a measure being incorporated into the budget: a VAT reduction to 6% for gas and electricity is estimated to cost an annual €1.6 billion.

“A VAT reduction can only be temporary and must be linked to structural, sustainable measures,” Marie-Christine Marghem (MR) said in the chamber yesterday.

Open VLD said it can be done, “but we are slightly more in favour of a sustainable approach with a smart clique system,” and PS is championing the €200 subsidy measure.

Another proposal suggests reducing the VAT on electricity to 6%, but the one on gas to 12%. This would also meet demands from energy experts for a tax shift from charges on electricity to charges on fossil fuels.

In Belgium, taxes and levies on electricity are currently the highest and those on gas are the lowest.

Written by Helen Lyons