As the Deputy will be aware, the current VAT system applied to intra-EU trade based on taxation in country of destination, is intended to be transitional in nature. The relevant European Union VAT Directive envisages that the arrangements for the definitive system, to be based in principle on taxation in the member state of origin of the goods or services, will be decided by the Council by the end of 1995 based on proposals from the European Commission to be made before the end of 1994. The transitional system will last at least until the end of 1996. However, if the target date of 1 January 1997 for the changeover to the definitive system is not met, the transitional regime will be extended automatically until the date of entry into force of the definitive system and, in any event, until the Council has decided on the definitive system.
At present, our VAT rating arrangements are fully consistent with EU requirements and, unless changes are necessitated as a result of the review due to be undertaken later this year, they may be maintained until the end of 1996, at least. The minimum level of the EU standard rate — currently 15 per cent — to be applied after the end of 1996 will be part of this review, as will the scope of the reduced rates and all of the transitional measures relating to rates, that is, the position of the zero and other super-reduced rates and the parking rate facility.
In relation to the reduced rating, the Deputy will recall that I signalled in my financial statement on 26 January last that, in the interests of encouraging employment, the Government intends, subject to budgetary constraints, to retain labour intensive services at the reduced rate of VAT in the medium term and that I will be pressing in the review of the VAT regime for the option to maintain the current position of labourintensive services beyond the current transitional period.
Accordingly, it is not a matter of being required to make changes or phasing in changes to the VAT regime, rather one of negotiation of the definitive system based on the proposals to be made by the European Commission.