Finland, as part of its anti-inflation strategy, to be launched in 2009, plans to lower VAT on food from the present rate of 17% to 12%. This is contrary to tax experts’ advice. Previously, when VAT was lowered for barbers in the country, most barbers did not lower their customer prices. Some expect the same will happen with food.

This comes alongside recent suggestions from France to lower VAT on oil. The European Commission has warned that tinkering with value added tax (VAT) on oil to fight rising prices, as French President Nicolas Sarkozy is proposing, would send a bad signal to producers. Sakozy’s comments came as a reaction to protest over high fuel costs from French fishermen launched three weeks ago, and Spanish fleets that went on strike to demands for government compensation.

Oil prices have soared to more than US$130 per barrel in recent months. French consumers pay about 19.6% VAT on the price of fuel. However, under EU rules, member states cannot apply a VAT rate of less than 15% unless they are able to obtain an exemption for a specific product or service, which requires unanimous backing from all other countries.

A commission spokeswoman for tax issues said that the French president's proposal was not clear and that more time would be needed to study the idea.