Ciarán Cannon (Galway East, Fine Gael) | Oireachtas source

I am pleased to have this opportunity to speak on the issue of the VAT treatment of the coach and bus sector.

The transport of passengers and their accompanying baggage is exempt from VAT in Ireland under paragraph 14(3) of Schedule 1 to the VAT Consolidation Act 2010. In this respect, services provided by the coach and bus sector are exempt from VAT. This means that a person who provides a bus or coach service does not register for VAT and does not charge VAT on the supply of their services. This also includes the hiring of a bus or coach with a driver. In this respect extending the 9% VAT rate to these services does not arise as no VAT is charged on the services. In addition, persons who are exempt from VAT cannot recover VAT incurred on goods and services incurred in relation to their business, such as fuel, tyres and mechanic charges, used for the purposes of the person's coach and bus service.

The Deputy is concerned about the different VAT treatment of passenger transport services between Ireland and the UK. In the UK, passenger transport is zero rated for VAT purposes, which means passenger transport providers do not charge VAT on the services they supply, but unlike in Ireland, they are entitled to recover VAT incurred on the goods and services used as part of that service, including fuel. VAT law in Ireland and the UK must comply with the EU VAT directive. As passenger transport was exempt in Ireland on 1 January 1978, it is possible under the VAT directive to continue to apply that exemption. As passenger transport services were charged at the zero rate in the UK on 1 January 1991, the UK is entitled to continue to apply a zero rate to passenger transport services. It is not possible under EU law for Ireland to apply a zero rate to such services as we did not apply a zero rate to them in 1991.

However, I would point out that UK passenger transport operators who establish their businesses in Ireland are subject to the same VAT rules as Irish operators. They are exempt from VAT and not zero-rated and as such are not entitled to deductibility in respect of VAT incurred on items such as fuel. In addition, UK passenger transport operators who are not established in the State are not entitled to any refund of VAT incurred in this State for the purposes of carrying out passenger transport activities, whether that service takes place wholly or partially in the State or whether it takes place wholly outside the State.

While persons who are VAT exempt cannot recover VAT incurred on goods and services incurred in relation to their business, there is special provision within the VAT code to allow a refund of VAT incurred on the purchase of touring coaches. Under VAT Refund Order S.I. 266 of 2012 coach operators who are exempt from VAT may, subject to the conditions in the order, be entitled to a refund of the VAT paid on touring coaches that are no more than two years old and are within specified dimensions.

Furthermore, while VAT exempt coach and bus operators are not entitled to claim the VAT incurred on their fuel costs, the Finance Act 2013 provides for relief from excise incurred on auto-diesel used in the course of business by qualifying bus and coach operators. The relief was originally intended to apply to licensed hauliers, but following consideration, the Government decided to extend the relief to tax-compliant licensed passenger transport operators. The relief will operate on a sliding scale dependent on fuel prices, but will not apply when the price of auto-diesel falls below €1.24, including VAT. The maximum amount of the relief will be 7.5 cent per litre and will come into effect from 1 July 2013. It is estimated that the relief will cost in the region of €35 million gross in 2013 and €70 million gross in a full year.

See this speech in context