Jackie Cahill (Tipperary, Fianna Fail)
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A number of constituents have been on to me about the VAT treatment of slurry bags. A slurry bag is an efficient way of increasing slurry storage capacity on many farms. The vast majority of Irish farmers are not registered for VAT but certain items of infrastructure are VAT reclaimable for unregistered farmers. The rule of thumb usually is that the object that the VAT is reclaimable on cannot be moved.

I have had a lot of correspondence with Revenue in the past couple of months to try to get this position clarified. Revenue says that it deems the slurry bags to be moveable infrastructure. With respect, that is utter nonsense. Anyone who would see a slurry bag that is put into operation would know that it is not possible to move it. I would like to give an example. Bulk milk tanks that are put in on farms are VAT reclaimable and a bulk milk tank could feasibly be moved from one farm to the other but it would be next nigh impossible to move slurry bags. In an era when we are trying to increase slurry capacity on farms, to put this extra cost on farmers is just not acceptable.

In the majority of cases, slurry bags are put on small and medium-sized farms. It is a very efficient and cost-effective way of increasing slurry capacity. I am completely unsatisfied with the answers I have got from Revenue, and I want the Department of Finance to direct Revenue that slurry bags be VAT reclaimable for unregistered farmers. This is common sense, but it is a fair approach as well. As I have said, the rule of thumb is that the infrastructure cannot be moved, and most definitely, on any farms where slurry bags are installed, they just cannot or would not be moved.

I do not want the answer that Revenue is an independent body. That answer is completely unsatisfactory. This is a policy issue, and there is a list. Slurry bags are eligible for the targeted agriculture modernisation scheme, TAMS, and there is a grant.

Young farmers can get their grant of 40% or 60% under TAMS for slurry bags. Not being able to reclaim VAT on it, however, is making it more expensive and prohibitive for many farmers to install them, even though they are an excellent solution to slurry issues and problems on farms.

The stock answer to the effect that this is a matter for Revenue, which is independent, is not satisfactory. I have had a number of instances of correspondence from Revenue. I did not take the first answer I got and I pursued the issue, but I have made no progress. It is adamant slurry bags are moveable objects and are not VAT debatable but I do not accept that. Will the Minister for Finance direct Revenue to carry out a proper categorisation of slurry bags and allow VAT to reclaimed on them? This is a significant issue at a time when the periods of slurry storage are increasing and farmers are looking at cost-effective options for increasing their capacity. The issue needs to be addressed urgently.

Malcolm Noonan (Carlow-Kilkenny, Green Party)
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I am not sure whether the prepared reply I am going to outline will give any further assurances to the Deputy but it is the response of the Department. The VAT treatment of goods and services is subject to EU VAT law, with which Irish VAT law must comply. In accordance with the EU VAT directive, farmers can elect whether to register for VAT in respect of their farming business. Farmers who register for VAT have an entitlement to reclaim VAT on costs incurred in respect of the agricultural business. A farmer who has elected to register for VAT and charges VAT on supplies can claim a deduction for VAT incurred in costs used for the purposes of their taxable supplies. A VAT-registered farmer would be entitled to reclaim VAT incurred on slurry storage bags through his or her VAT returns.

Alternatively, farmers can remain unregistered and opt for the flat-rate farmer scheme. This scheme is a long-standing arrangement under VAT law that allows farmers who remain unregistered for VAT purposes to be compensated on an overall basis for the VAT charged to them on their purchases of goods and services. It allows such farmers to charge and retain a flat-rate addition to the sum they charge for the agricultural goods and services they supply in the course of their farming business. The flat-rate addition is calculated as a percentage of the sum payable to the farmer and is a matter of fact based on commercial agreements between the farmer and the customer. The scheme is designed to reduce the administrative burden for farmers and allows them to remain outside the normal VAT system, thereby avoiding the obligations of registration and returns.

Unregistered farmers may also be able to avail of a VAT refund on certain expenses allowed under their value added tax refund order of 2012. The VAT refund order allows for refunds to be claimed on outlay incurred on the construction of a farm building or structure, on the fencing, draining or reclamation of farmland and on the construction of equipment for the purpose of the microgeneration of electricity for use in the farm business. Revenue has advised, however, that outlay for other purposes such as slurry storage bags does not come within the scope of the refund order.

Jackie Cahill (Tipperary, Fianna Fail)
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I thank the Minister of State for the reply but it is exactly the kind of reply I expected. I am a practising farmer and I fully understand how VAT operates on farms. He stated, "Revenue has advised, however, that outlay for other purposes such as slurry storage bags does not come within the scope of the refund order." It is incomprehensible to say slurry storage should not be VAT refundable for unregistered farmers. Farmers who are registered for VAT are, in the vast majority of cases, responsible for very large units, while ordinary rank-and-file farmer tend not to be registered for VAT. Such farmers will use the VAT refund in these cases where they are putting additional infrastructure on their farm, and can reclaim VAT. VAT in respect of fencing is reclaimable, and if a milking parlour or an underground slurry tank is installed, the VAT on that is reclaimable, but the VAT in respect of slurry bags is not.

I do not accept the answer. The Minister for Finance has to go to Revenue and direct it to re-examine this classification. How can anyone with common sense say slurry storage should not come under the refund order? As I said, I have contacted Revenue on a number of occasions and received this same cock-and-bull story of an answer. It is either laziness or incompetence on the part of Revenue not to recognise that this is an efficient, cost-effective way of storing slurry for a lot of small and medium-sized farmers, and for it not to be VAT rebatable is unacceptable.

I urge the Minister of State to speak to the Minister for Finance with a view to his insisting that Revenue re-examine the refund order to allow VAT on slurry bags to be reclaimable. It makes no sense. We are in an era when slurry storage capacity is going to have to increase on the vast majority of farms, and this discrepancy as regards VAT refunds is just not acceptable.

Malcolm Noonan (Carlow-Kilkenny, Green Party)
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As I outlined, in accordance with the EU VAT directive, farmers can elect whether to register for VAT in respect of their farming business. I take on board the Deputy made about larger farms being more inclined towards VAT registration, but for many small farmers, registering for VAT is an unnecessary complexity that is not possible to justify given the small-scale nature of their business. The farmer's flat-rate scheme, therefore, provided by the EU VAT directive is key to supporting such farmers. It is used by the majority of member states, including Ireland. The current rate for the flat rate addition is 5% and this is reviewed each year in the run-up to the budget in accordance with the criteria set down in the directive. It is based on macroeconomic data, including the cost of agricultural inputs and production, as well as the prevailing VAT structures averaged out over the three preceding years. The rate for 2023 is based on data obtained from years 2020 to 2022.

Farmers who do not choose to register for VAT have an entitlement to reclaim VAT on costs incurred in respect of agricultural business. As I mentioned, a VAT-registered farmer would, therefore, be entitled to reclaim VAT incurred on slurry storage bags through their VAT returns. Farmers who are not registered for VAT are compensated for VAT incurred on goods and services used in the course of their farming businesses, including the purchase of agricultural equipment, through the flat-rate addition they receive on payments for their supply of agricultural produce and services. Unregistered farmers can also reclaim VAT for the construction, extension, alteration or reconstruction of a building or structure designated for use solely or mainly for the purposes of farming businesses. However, this cannot be extended for other purposes such as slurry storage bags, given Revenue has advised they do not come within the scope of the refund order.

The Deputy could have this conversation with the Minister during the discussions for budget 2024, although I will certainly raise the matter with him on his behalf.