Common energy tax for EU countries

From January 1, 2004, European nations are likely to impose taxes for coal, natural gas and electricity. EU finance ministers recently reached a political agreement on a proposed directive to put in place a common framework to tax energy products. Currently, only oil comes under this category and the levy has not been revised since 1992. The new draft directive also raises the minimum tax rates for oil.

"I am delighted that the council (of ministers) has at last been able to agree to this important proposal for minimum tax levels of all sources of energy," said European taxation commissioner Frits Bolkestein.

Not everyone shares Bolkestein's sentiments, though. A press release issued by the Brussels-based European Environmental Bureau (eeb) states: "The council has drastically watered down the original proposal of the commission, in particular the minimum rates, and has added a huge list of rebate and exemption possibilities. Moreover, the text does not plan a review of the rates before the year 2012."

The draft directive will be sent to parliament for final approval. But that may be a mere formality since parliament has only consultative powers in case of tax measures. The proposed common tax would reduce competition arising from divergent tax rates in member countries. Energy products will be taxed differently according to their uses. For instance, tax rates for diesel will vary according to its use -- be it as motor fuel, for industrial and commercial purposes, or as heating fuel.

A higher tax will be levied on energy products, when used for business purposes. Energy products will be exempted from tax in international air and maritime transport within community territory. The proposal also provides for reducing the tax burden on those energy intensive firms that have worked towards reducing their energy consumption. Tax incentives are being offered to those companies, too, who will agree to reduce their greenhouse gas emissions.