Michael McDowell (Dublin South East, Progressive Democrats)

On the other hand, if there was a high-cost input into the business, and a company was selling windows to SSIA holders, for example, there would be much VAT. If that cannot be recovered, it would not have the same distorting effect on competition. That is the significant difference. There is another angle if a company is supplying to VAT-registered customers or end users who cannot reclaim the VAT. The distortion effect is much more marked if a company is supplying to retail customers who cannot reclaim the amount, or consumers in other words. In those circumstances, the difference between having a 21% VAT obligation and not having it could be quite considerable, particularly in the case of somebody with very low VAT inputs.

It differs from business to business and on the nature of the business as to whether there is a distorting effect. From the Revenue's perspective, there are costs involved in dealing with very small businesses. To take an example, requiring an exchange of forms every VAT period with every minute start-up business along with an examination of cheques for minute amounts would impose a significant charge on Revenue's time.

By the same token, Revenue does not lose out. It is not the end of the world for Revenue if somebody who has significant VAT on inputs into his or her business which is not recoverable does not register. I should emphasise registration is always optional. Anybody who wants to register can. Certain people below the VAT threshold register because it makes sense due to the nature of their businesses.

Ireland is among those countries with the highest VAT registration thresholds. Our nearest neighbour, the UK, traditionally maintains its thresholds at a high level and has the highest level in the EU at £61,000. As I stated, such high thresholds bring their difficulties. They can give rise to distortion in competition between those just below the threshold and those just above it. This distortion effect is exaggerated the higher the threshold is set.

It is considered the increases proposed in the budget today are more than adequate to give small start-up companies breathing space and an opportunity to achieve a foothold in the market before their turnovers reach the level which requires them to register and account for VAT. The threshold also caters for small businesses operating on a part-time or hobby basis. For various reasons, including the sporadic nature of their activities or the seasonal nature of their markets, such businesses often experience difficulties in complying with VAT accounting requirements in a consistent way. From Revenue's point of view, it makes sense to give a degree of latitude to those firms.

Some countries in the EU have no VAT registration threshold. It must be charged and that is it. To give the House an example, Ireland has thresholds of €35,000 and €70,000. Italy has no threshold. I mentioned the UK which has a threshold of £61,000, equivalent to €86,000. The gross averaging out of EU member states without being weighted is €17,212 for services and €21,000 for goods. We are certainly way above the average which makes sense.

Regarding what Deputy Cassidy stated, it is important to note this is not merely a Revenue convenience measure. The small business forum demanded this. It pressed its case strongly and was heard. We should acknowledge the case was made and heard at committees of this House. Deputy Cassidy presided at meetings where these issues arose. It is important to note the Government listened to the voice of small business on this issue.

Regarding agriculture, the changes in VAT were strongly canvassed by farming organisations. I pay tribute to the Ministers for Finance and Agriculture and Food for the way in which they listened carefully to those representations and acted on them. The question was asked whether the review which has been ongoing for some time is likely to come to a conclusion. I am informed by my colleague the Minister for Agriculture and Food, Deputy Coughlan, that it will do so in the relatively near future. We will have certainty arising from that review.

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