Willie O'Dea (Limerick East, Fianna Fail)

I move:

(1) THAT the rate of value-added tax on the supply of certain goods and services at present chargeable at the rate of 21.5 per cent be decreased to 21 per cent of the amount on which tax is chargeable in relation to the supply of such goods and services, and that, accordingly, subsection (1) (inserted by the Finance Act 1992 (No. 9 of 1992)) of section 11 of the Value-Added Tax Act 1972 (No. 22 of 1972), be amended in paragraph (a) by substituting "21 per cent" for "21.5 per cent" (inserted by the Finance (No. 2) Act 2008 (No. 25 of 2008)).

(2) THAT this Resolution shall have effect as on and from 1 January 2010.

(3) IT is hereby declared that it is expedient in the public interest that this Resolution shall have statutory effect under the provisions of the Provisional Collection of Taxes Act 1927 (No. 7 of 1927).

The standard rate of VAT is being reduced from 21.5% to 21% with effect from 1 January 2010. This change is being introduced to assist businesses in difficult economic times, improve competitiveness and consumer confidence and to reduce the burden of VAT on individuals. This VAT rate reduction will cost €140 million in 2010 and €167 million in a full year.

The goods positively affected by this VAT reduction include items such as soft drinks, confectionary, alcohol, tobacco, adult clothing and footwear, sports goods, cars, petrol, diesel, electrical equipment, CDs, DVDs, furnishings and jewellery. The services affected include telecommunications, toll roads, television rental, haulage, advertising and professional legal services. From 1 January 2010, the differential between the standard VAT rates of Ireland and Britain is due to reduce from 6.5 percentage points to 3.5 percentage points; 21% compared to 17.5%.

After the reduction, five countries in the EU will have higher standard VAT rates than Ireland, namely Denmark, Hungary and Sweden at 25%, and Finland and Poland at 22%. Furthermore, three other member states, Belgium, Lithuania and Latvia, will share our same standard rate of 21%. Some other member dates have indicated their intention to increase their VAT rates in 2010, at which point Ireland will have the eighth highest standard VAT rate in the EU.

On resolution No. 4, a new VAT margin scheme in respect of second-hand means of transport was announced on 14 September 2009 following discussions with the motor industry. This replaces the existing special scheme. A margin scheme was initially announced last April in the supplementary budget but it was decided not to proceed with the proposed scheme in the Finance Bill 2009. After further consideration, the margin scheme as announced on 14 September 2009 is now being put it place.

Currently, all EU member states apply the margin scheme to second-hand vehicles with the exception of Ireland and Denmark. The scheme is estimated to cost €7 million in 2009 and €20 million in 2010, with no further cost in future years. As the scheme was already announced and accounted for last September it is not deemed to be a new budget measure, and as such was not included in the budget speech or budget costings. This resolution gives legal effect to the introduction of the scheme.

The margin scheme, which will apply from 1 January 2010, is simple and straightforward in that a dealer accounts for VAT on his or her profit margin, that is, on the difference between the cost of acquiring a second-hand vehicle and the re-sale price of the vehicle. Under the margin scheme, if a dealer agrees to allow an amount of €10,000 on a second-hand car as a trade-in, and subsequently resells that car at a VAT inclusive price of €12,000, the VAT due to the Exchequer is based on the margin achieved by the dealer, €2,000. In this particular case, the dealer would be currently liable for €354, or €346 at the new 21% rate, in VAT. If there is no margin then no VAT liability arises; if there is a positive margin, VAT is charged based on that margin.

See this speech in context