Can VAT cuts influence people to act in more environmentally friendly ways? Some influential UK lawmakers think so, suggesting that VAT incentives will lead to greener outcomes. However, not everyone is so certain. UK Treasury minister Jesse Norman has pushed back against the idea, suggesting that, even with green VAT cuts, less energy-efficient goods may still be cheaper, and thus more attractive to consumers.
“The government has no plans to change the VAT treatment of energy-saving materials at this time,” Norman has confirmed.
However, Norman did suggest that alternative means are needed to encourage the uptake of energy-efficient goods, such as heat pumps for gas boilers.
Calls to scrap VAT on electric vehicles
However, consumer organisations and industry groups insist that cutting VAT can produce greener outcomes.
The AA has called on the UK government to zero rate electric vehicles, to encourage consumers to move away from internal combustion engines. The UK government has so far not pursued the idea. (By contrast, Rwanda cut VAT on electric vehicles and is developing incentives to promote electric vehicle production in the country.)
Raising VAT to promote green energy
While policymakers debate the most effective green incentives, we should note that VAT cuts on energy-efficient goods are only one side of the equation.
Lawmakers have also floated tax increases on certain goods. For instance, increased VAT on airline tickets and carbon taxes have been proposed.
Similarly, some EU lawmakers want to see the end of the VAT exemption on jet fuel, in order to help active the carbon-neutral goals.
Adapt to change, before it happens
Climate issues are now front and centre of high level policymaking. And there is no doubt that VAT will play an important role in future green initiatives.
Companies need flexible compliance strategies and up-to-date information to anticipate changes to VAT regulations and take advantage of new incentives.
Vatglobal is carefully monitoring green VAT policies around the world. We’ll ensure your business is always 100% VAT compliant, everywhere you have an obligation.