Michael McGrath (Cork South Central, Fianna Fail) | Oireachtas source

I move amendment No. 18:

In page 78, between lines 18 and 19, to insert the following:“50.The Minister shall, within 6 months of the passing of this Act, prepare and lay before Dáil Éireann a report on the potential introduction of a capped Value-Added Tax compensation scheme for charities.”.

The amendment requests that within six months of the passing of the Act the Minister will prepare and lay before the House a report on the potential introduction of a capped value added tax compensation scheme for charities. This is an issue we discussed on Committee Stage. In particular, we discussed the special working group report commissioned by the Minister, which was published on budget day last month. This is a very important issue for the charitable sector. It is not widely known that Irish charities are estimated to pay in excess of €40 million VAT on independently fundraised income annually. We all know the legal basis for this, which is that because they do not operate in the course of business they are not in a position to register for VAT and claim back the VAT they pay as an input credit. This means a significant proportion of the amount of fundraising they carry out ends up going back to the State by way of VAT.

One of the main concerns expressed by the Minister on Committee Stage, in terms of not looking at this further, is the possible creep effect whereby other sectors, such as sporting bodies, could equally highlight they raise money in a voluntary capacity through weekly lotto payments and much of this ends up going on VAT when equipment is bought or other services are paid for.

The model used in Denmark has in place a compensation system for charities with regard to the VAT they pay which is capped at €20 million. The Minister took a very important first step in commissioning the special working group report, and the Irish Charities Tax Reform Group and others contributed significantly to this work. The report makes for very interesting reading. I understand the Minister's reason for not going further at this stage, but it is worthy of further examination. I do not believe the Minister should close the door on the issue, given the real impact it has on the charitable sector and its capacity to deliver services to the people relying on their work. This is the essential point. It should not be the case that money collected by volunteers for charitable purposes ends up going back to the taxman by way of VAT when the charity buys goods and pays for services for the end user who requires those services for whatever reason. The issue needs to be looked at further, which is why what we have brought forward is quite a modest amendment calling for a report within six months to examine the potential introduction of a VAT compensation scheme for charities which would be capped. I know it is a legitimate concern that if this is demand-led it could become a runaway train with regard to the overall cost to the Exchequer, but this can be dealt with by way of capping the compensation scheme. I look forward to the Minister's response.

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