Tom Parlon (Laois-Offaly, Progressive Democrats)

Senator John Paul Phelan's recommendation would provide that the VAT registration threshold for traders in services would increase from €25,500 to €75,000. The Senator will appreciate that EU VAT law, with which Irish law must comply, determines the rules in respect of any change in VAT registration thresholds. This means that it is possible to increase the thresholds but only in line with maintaining their real value.

In the area of services, this would increase the current threshold to €34,502. The existing thresholds have been in operation since 1994. Increasing the service threshold to €75,000 would be under the real value increases permitted under the EU sixth VAT directive and would require consultation with the European Commission.

The cost of increasing the services threshold as proposed would be approximately €160 million in a full year. Therefore, it is more appropriate to treat the question of raising VAT thresholds as a budgetary issue. Higher registration thresholds would cause competitive distortion between registered and unregistered businesses. Registered businesses which are obliged to charge VAT on services would be competing unfairly with unregistered businesses of a slightly smaller size. It should also be remembered that Ireland has the third highest registration threshold in the EU. Some member states have no registration thresholds and require all firms to register, irrespective of their turnover. In these circumstances, I cannot accept the recommendation.