EU says fuel tax change would require unanimity

BRUSSELS (Reuters) -- The European Commission deflected a call by French President Nicolas Sarkozy today for the European Union to consider capping sales tax on fuel in response to soaring world oil prices.

Any change in value-added tax on fuel would require unanimous agreement by EU governments and would be the wrong response to high petroleum prices, the EU executive said.

EU finance ministers pledged in 2005 not to cut taxes on fuel in response to rising world energy prices.

Sarkozy asked in an RTL radio interview: "If oil continues to go up in price, should we not suspend the VAT part of tax on the price of fuel?" He called for "stabilizing" VAT revenue when oil went above a certain price level, which he did not specify.

Commission taxation spokeswoman Maria Assimakopoulou said it was not entirely clear what Sarkozy was proposing but he appeared to want to change the way VAT was calculated on fuel, which would require a proposal by the EU executive and a unanimous vote by member states.

"The question of taxes comes up very often but still we have doubts if it is the best way to react in these cases," she said.

She noted that Sarkozy's idea appeared to be in response to protests by striking French fishermen, but fishermen already deducted VAT from their taxable income.

Commission energy spokesman Ferran Tarradellas said the best way to respond to higher fuel prices was to enable the sectors affected to pass on the increased cost to end-users.

That method had been used successfully in contracts in the road haulage sector, he said.

"On another occasion where oil prices were discussed, the Commission said with the member states' agreement that changing taxation on fuels in order to combat increasing prices would send the wrong message to producing countries.

"This would show them that they could increase prices, and citizens would have to pay for this. So that's really the wrong message," he said.

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French President Nicolas Sarkozy
Photo credit: Reuters