Brian Lenihan Jnr (Dublin West, Fianna Fail)

As Deputy Burton pointed out there was an initiative in the early 1990s in section 134 of the Finance Act 1992. It provided a relief on VRT for cars used to service short-term self drive contracts. Part of the difficulty was it had a very unhappy history. Arising from Revenue audits, there was strong evidence that the sector was manipulating contracts to ensure cars used for the provision of services not originally envisaged under the scheme nonetheless benefited from the VRT relief available. Operators applied this scheme to cars for use outside the tourism area, including the enabling of corporate clients to provide a pool of cars to visiting executives or their own staff and allowing VRT free driving by Irish citizens who hired rather than owned a car, while their neighbours who own cars had to pay VRT.

Attempts were made to tighten up the scheme in the Finance Act 2008 to try to limit such abuses. However, the sector raised objections and concerns. The scheme, especially following amendment, necessarily imposes a considerable administrative burden on individual firms and the Revenue to ensure that the VRT refund conditions are satisfied and that the scheme is not abused. A number of meetings were held between the sector and the Revenue. It is complained that the scheme, if operated correctly, is complex to administer. It is argued that it not only restricts normal competitiveness between firms but that it limits the potential to grow the car rental market outside the tourism sector to other long-term rentals. Some operators made the point they would have to effectively maintain two separate vehicle fleets, one for hire to tourists and another for the domestic market, to continue to qualify for the relief on cars actually used in the provision of cars to tourists as the scheme intended. This would be uneconomical and unworkable in practice. Given that the scheme was prone to abuse and that it imposed a considerable necessary administrative burden on both the operators and the Revenue to ensure the conditions for the VRT refund are being satisfied, a decision to phase out the scheme was taken and that was done in the Finance (No. 2) Act 2008. This allowed the retention of the previous repayment provision for 2009 with the relief being phased out over the 2010 and 2011 seasons. It must be recognised that the sector can, compared to previously, make considerable savings on VRT liabilities by switching more of the rental fleet to lower CO2 emitting vehicles. The price of new cars has reduced and with the July 2008 rebalancing of the VRT system, the average VRT paid on new cars reduced by more than 30% between the first half of 2008 and 2009.

The abolition of the scheme will remove existing restrictions and allow operators to develop their business models based on the domestic rental market. While some firms in the sector may resist the phasing out of this scheme, other operators indicated they would prefer the abolition of the scheme rather than having its use restricted, as a consequence of which, some business models would qualify under the scheme while others would not. In the meantime, there is no evidence of any significance change in the use of the scheme that prompted the decision to phase it out and I see no argument for further assessment.

The wider issues in respect of the tourism industry are a matter for the Minister for Arts, Sport and Tourism. If we wish to pay a specific subsidy to provide cars for the tourist and visitation industries then it is something we will have to decide on, but the practicalities of implementing such a measure through a tax based solution are very difficult and that has been the consistent experience since 1992.

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