EU hopes Poland will join VAT deal

The European Commission said Tuesday it still hoped Poland would join an agreement on sales tax exemptions to prevent ramping up rates in nine other EU countries. Poland said Monday it would not sign the compromise extending the reduced VAT rates until the end of 2010, making it the only country blocking a deal after the Czech Republic and Cyprus backed down on Sunday. The compromise needs the unanimous approval of 25 EU governments to come into effect.

The Commission said a Polish rejection would mean nine other countries would have to bring reduced rates for services such as hairdressing and home repairs up to the EU minimum standard rate of 15 percent.

"The situations is clear ... they have to change the situation and come back to the level of standard VAT," said EU spokeswoman Maria Assimakopoulou.

The Poles insist that want to keep a lower VAT tax rate for new home construction beyond 2008. Polish Finance Minister Zyta Gilowska said the decision was based on "the good of Polish citizens and the need to protect the interests of our country."

The issue is urgent because value-added tax waivers expired at the end of 2005 and the Commission is legally obliged to sue the countries that currently use a lower rate. It said it would make a decision on legal action on Wednesday.

The EU small business lobby UEAPME said a failure to strike a deal would mean instant tax hikes of up to 14 percent, raising prices for services and threatening up to 200,000 jobs across Europe.

France, Britain, Belgium, Greece, Spain, Italy, Luxembourg, the Netherlands and Portugal have low tax rates for a range of labor-intensive services, and they need the support of all their EU colleagues to extend or add to the allowed list. The compromise, agreed last week after years of debate, allows other countries introduce the VAT waivers before the end of March, reports the AP. I.L.