Lower VAT on alcohol?

In 2014, the Icelandic Minister for Finance and Economic Affairs, Bjarni Benediktsson, set up a steering committee to work on proposals to simplify and improve Iceland’s VAT and excise-duty system.

The first fruits of the committee’s labour were amendments entering into force on 1 January of this year. According to the Ministry, this first phase of changes was a great step forward towards creating a more effective system. Of the innovations involved in this first phase, consumers in Iceland will be most aware of the scrapping of general excise duty on 1 January. VAT currently makes up one third of the State’s total tax revenue.

What's next for VAT and excise duty?

Benediktsson has now instructed the steering committee, which will sit until the end of the current government’s term of office, to begin work on the following five issues:

1. Setting up a working group focusing on the tourism industry, including an analysis of the pros and cons of VAT obligations on car-rental companies and public transport.
2. Looking into whether or not VAT on alcohol should be reduced (with corresponding changes such that the overall sale price remains the same).
3. Reviewing the legislation and rules governing the purchase of goods and services from abroad.
4. Reviewing the rules governing property rental, construction and associated tax rates.
5. Looking into further improvements to the VAT system and the main aspects thereof, in order to serve as a basis for estimates of State revenue and support general operations of tax imposition, enforcement and collection.