Joe Walsh (Cork South West, Fianna Fail)

I thank the Minister of State at the Department of Foreign Affairs, Deputy Conor Lenihan, for attending to respond to this matter. We all know of the great work done by charities, specifically Irish charities whose work is recognised internationally. They must be supported and encouraged in their endeavours. One way the Government can do this is to support the call by the Irish charities tax reform group to remove the VAT burden on charities through the introduction of a VAT compensation scheme.

Charities are seeking compensation for the unreclaimable VAT they pay on expenditure. I do not buy the argument made by the Department of Finance that charities do not pay VAT on their services because while that is the case, they pay VAT on a range of other expenses to which I will refer later.

VAT compensation is a priority for several reasons, including the fact that it has been identified by charities as having a significant impact on their ability to undertake their work. The Department or Minister must not hide behind EU directives or regulations. The relevant EU Commissioner has stated that there is no impediment at EU level to such compensation being paid by EU member states.

The Danish Government has recently acknowledged that charities have a right to such compensation and is engaged with charities in finalising the practicalities of a compensation scheme. I ask the Department to adopt a similar approach and engage with charities here to identify ways in which it can be of assistance. I doubt much of the money which flows back into the Exchequer every time we give a few euro to charity is allocated to priority areas such as those in which charities are involved.

Charities pay VAT on fundraising efforts, promotion, essential equipment, professional fees, capital expenditure and necessary overheads in buildings and facilities. Unlike the business sector, charities cannot reclaim VAT they pay on this expenditure. The Minister for Finance has the power to relieve this VAT burden by compensating charities without contravening EU regulations, as was confirmed by Mr. László Kovács, the Commissioner for Taxation and Customs Union, when he stated:

The Commission has always considered that any scheme designed to relieve the VAT burden for charitable activities can be regarded as compatible with EU legislation if it is clearly separated from the VAT system... I have to underline that the decision to set up such a refund mechanism is strictly a national budgetary issue over which the Commission has no say or influence.

I ask the Minister for Finance to meet representatives of charities to devise a scheme to compensate for the VAT paid by charities. The requirement on charities to pay VAT has a human cost. For example, the €300,000 VAT bill paid annually by the Irish Cancer Society would run its entire cancer information service for a year, while the VAT bill paid by Concern last year was almost as high as its entire budget for Rwanda. Last year, the Missionaries of the Sacred Heart paid €55,000 in VAT, a sum that would feed, clothe and educate 153 AIDS orphans for a year and achieve a tremendous amount for impoverished people in underdeveloped and developing countries.

The current VAT regime as it affects charities is no more than a tax on initiative which has a major negative impact on the work of charities and the people they seek to help every day, while forming a minuscule portion of tax revenue for Government. In bringing this matter to the Minister for Finance in the strongest possible terms I urge him to initiate discussions with the charities to provide a VAT compensation in the next Finance Bill.

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