The proposed changes to the system

The European Commission recently published its proposals to reform the Value Added Tax (VAT) system. If the proposal goes ahead, Member States will be able to set reduced or zero VAT rates much more freely than currently. Amongst others, conventional bicycles and electric cars could benefit from reduced or zero VAT, but EPACS (Electrically Power Assisted Cycles) could not. They have been categorized alongside transport powered by fuel, oil and gas as goods whose sale will be subjected to the standard VAT rate of at least 15%.

ECF’s concerns

This proposal has the potential to substantially damage the use of EPACs.

This is a cause for concern because electric bicycles present numerous social and environmental benefits. As a sustainable mode of transport that doesn’t emit pollution, they stand to greatly contribute to the achievement of the EU’s environmental and transport targets.

Electric bicycles also offer a realistic alternative to journeying by cars. For example, when France introduced a national purchase incentive scheme for EPACs, a large-scale survey revealed that EPAC trips had replaced 61% of car journeys, compared to 21% by conventional bicycles.

What’s behind this success?

1. EPACs make cycling more accessible and attractive

The option to travel on an electric bicycle opens up active mobility opportunities for social groups that do not normally cycle because of their physical condition, for instance senior citizens, or because of a lack of perceived convenience such as commuters. Natural obstacles to cycling are also more easily overcome, such as hills or headwind. 

1. EPACs opens increases the distance that can be cycled with the same level of effort compared to conventional bicycles

A study by the German Federal Environmental Agency shows that in an urban context, conventional bicycles are faster than cars for distances of up to 5 km. With ebicycles, this radius is enlarged to 10 km, and even for longer distances of up to 20 km.

1. EPACs (and electric cargo-bicycles) make transporting heavy goods by bicycle even easier

Therefore, their uptake should be encouraged, and not be saddled with the financial burden rightly attributed to environmentally damaging modes of transport, which will raise their cost and reduce their use and sales.

The VAT proposals also threatens to undercut member state’s initiatives that successfully boost EPAC usage.

As the case in France shows, government initiatives are vital to boosting EPAC use. A number of member states, as well as regional and local authorities, have joined France in launching purchase incentive schemes to promote their use. For example, Sweden and Austria have introduced purchase premiums schemes to increase the market uptake of EPACs, which the current VAT proposal would radically undermine.

ECF and CONEBI recommendations

The Council must extend the exemption of bicycles from obligatory standard VAT rates to EPACs, and create a specific category for electrically power assisted cycles (EPACs).

This has the potential to reduce the cost of EPACs for customers in countries with lower income levels, and is cost-efficient, with EPACs being projected to save 4.4 billion EUR in public health and CO2 emissions reduction over the next five years.

To find out more about this issue, ECF and CONEBI’s full position paper can be found here.