Timmy Dooley (Clare, Fianna Fail)
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As the Minister of State knows, the private bus and coach industry plays a substantial role in the Irish economy. The industry is made up of over 1,900 small to medium enterprises which operate in every county in Ireland and which between them employ somewhere between 6,500 and 7,000 people. The industry is a major provider of transport services, with 276 scheduled services, 220 student services and approximately 200 tour services. I wish to focus on the 200 tour services in this particular discussion.

Coach tourism services make a significant contribution to the Irish economy, with about 300,000 overseas coach tourists visiting Ireland in 2010, worth an estimated €180 million to the Irish economy and supporting employment in other sectors of the tourism sector. Private bus and coach tour operators account for approximately 80% of the school transport service. Unlike the haulage industry, coach and bus companies cannot reclaim VAT. The issue of VAT exemption for the haulage industry is a historic issue. This competitive disadvantage must also be viewed in the context that Northern Ireland based coach operators are zero rated for VAT and, therefore, can claim VAT back on all inputs. This puts southern operators, or Twenty-six Counties operators, at a distinct disadvantage, because they must include all the VAT they pay on the inputs and are not in a position to reclaim it, unlike their counterparts north of the Border. This places a significant competitive disadvantage on their shoulders.

While we are an all-island economy in some respects, there is no doubt the Border exists in this regard and this creates a great difficulty for those operators south of it to be able to compete effectively. This is why, in the past couple of years, we have seen a greater amount of Northern registered tour buses plying their trade south of the Border. This would be fine if we had a fair and open competitive environment, but we do not. It is incumbent on the Department of Finance to look at this situation and to try to assist those companies south of the Border which must operate within a different VAT regime to see if something can be put in place to resolve their issue.

I appeal to the Minister of State to take on board the concerns that have been raised. As he knows the coach tour part of many of these operators' businesses is important to their survival so they can provide the type of school services they do and other scheduled services. It is part of the mix of services they operate, but now it looks as if the pressure being put on them in this competitive environment will make it very difficult for them to survive long term. It is incumbent on the State to address the issue being brought to its attention.

Ciarán Cannon (Galway East, Fine Gael)
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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.

Timmy Dooley (Clare, Fianna Fail)
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I welcome the Minister of State setting out the facts as they are. A UK business or operator established in the Six Counties can offer its services south of the Border. It can purchase all of its materials north of the Border, where it has the capacity to recover the VAT it pays. I do not suggest such companies do so on goods purchased south of the Border. This relates to inputs purchased north of the Border. There is nothing to prevent such a company from coming south to compete with operators in this jurisdiction that have a much greater cost base by virtue of their fuel inputs, etc. Such factors make it exceptionally difficult for them to compete with those involved in what I would describe as a predatory practice. We must recognise that the treatment or application of VAT is entirely different on either side of the Border.

The Minister of State has mentioned that this relates to an EU position. The Government has made much of its capacity to renegotiate matters at EU level in recent times. I would have thought it should be possible for it to seek some redress in this instance, given that it is clearly having a significant impact on a particular sector. It should be working at EU level to ensure the same set of circumstances applies south of the Border as north of the Border. This industry should be able to avail of a zero VAT rating or other compensatory measure that would ensure there was a fair and level playing pitch. Those who wish to ply their trade here should be treated equally in the interests of the protection of jobs. The Minister of State does not need a lecture from me about the devastating impact on the domestic economy of the fact that over 14% of people in our society are unemployed. The sector we are discussing would gain if this relatively minor change were made to an EU directive. Perhaps some other methodology might be used to ensure these operators can participate and compete on a level pitch. I ask the Government to consider the impact of what has happened in this sector and try to find a means of rectifying it. That is necessary if we are to retain the level of employment in this sector and enable those involved in it to compete effectively.

Ciarán Cannon (Galway East, Fine Gael)
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The Deputy is aware that the rather unusual and varying applications of VAT that applied in member states when they joined the European Union were allowed to remain in place. In essence, that has led to the development of some anomalies. The difficulty is that the VAT directive which applies does not allow for such anomalies to be removed. I wholeheartedly agree with the Deputy that the industry needs any support we can make available to it. The only option available to us in that regard was to extend excise duty support to hauliers and those involved in passenger transport services. We have done this and it was sought by the coach and tourism operators. The Government had given a commitment to support them by using the only taxation facility available to do so. It will cost the State €70 million in a full year. That is a serious commitment on the part of the State and the Government to a sector that deserves our support and will play a part in the country's future recovery.