EC: VAT adjustment on oil would send 'bad signal'

The European Commission has warned that French President Nicolas Sarkozy's proposal to adjust value-added taxes (VAT) on oil would send a "bad signal" to producers.

Eric Watkins
Senior Correspondent

LOS ANGELES, May 27 -- The European Commission has warned that French President Nicolas Sarkozy's proposal to adjust value-added taxes (VAT) on oil would send a "bad signal" to producers.

"Modifying the fiscality of fuel to fight the rise in oil prices would send a very bad signal to oil-producing countries," an EC spokesman said. "We would be saying that we can raise oil prices, and this will be paid for by the taxes of Europeans," he said.

A month before taking over presidency of the European Union, Sarkozy said he wanted to put "the question to our European partners: if oil continues to increase, should we not suspend the VAT taxation on the price of oil?"

Saying that it was necessary to have "the courage to tell the French" that fuel prices were going to continue to rise, Sarkozy also suggested allocating additional VAT income resulting from the price rise to a fund intended to reduce the bill of the poorest.

His proposals came as French fishermen kept up protests over high fuel costs by blocking ports and shipping, while other protestors blocked oil tankers from entering or leaving refineries operated by Total SA at Dunkirk and Gonfreville on the English Channel.

French consumers currently pay about 19.6% VAT on the price of fuel.

Contact Eric Watkins at hippalus@yahoo.com.

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