Mary Hanafin (Dún Laoghaire, Fianna Fail)

I do not propose to accept the recommendation. However, the Minister for Finance wants to point out that the full Exchequer revenue implications of the application of VAT to the activities of public bodies, including local authorities, are difficult to estimate, even after the tax has been applied for some time. Whereas there will probably be a positive revenue yield for the Exchequer, it will be far lower than was initially envisaged. While yield will accrue from the VAT being applied to services that were up until now exempt, any VAT charged to business customers will be reclaimed by them in the normal manner, resulting in a Revenue-neutral position in so far as those customers are concerned.

Public bodies will be in a position to claim VAT input credit in respect of VAT paid on the inputs they use in providing their services which they cannot do at present. Consequently, any Exchequer gain from VAT being charged by public bodies will be reduced by VAT on input claims by public bodies and also by the business recipients. Many Exchequer funded bodies which continue to remain exempt from VAT may face increased charges for the services they receive from public bodies due to the services becoming subject to VAT from 1 July 2010.

In such cases, these exempt bodies may require their funding to be increased. Where the public bodies reclaim significant VAT input credit and do not pass it on in prices charged for services, the Exchequer funding could be reduced.

In this context, officials from the Department of Finance, the Revenue Commissioners and the Department of the Environment, Heritage and Local Government have undertaken surveys of the nature and extent of services operated by local authorities, Departments and agencies under their remit to determine what level of services will become subject to VAT on 1 July 2010.

Outside of the local authority area, no other significant services have emerged. Revenue will assist public bodies in understanding their obligations under the new provisions. Discussions have already taken place with local authorities in this respect. Consequently, it was not possible to estimate properly the value of VAT charged and claimed by local and public authorities and report the information as requested by the Senator.