Pat Rabbitte (Dublin South West, Labour)

I am pleased to have this opportunity to respond to the important matter raised by Senator Conway on behalf of my colleague, the Minister for Finance.

VAT is charged on the supply of goods and services. The rate applying is subject to the requirements of EU VAT law, with which Irish VAT law must comply. The EU VAT directive governs VAT law and the rates applicable to various goods and services. The directive provides that member states must apply a standard rate of VAT to the majority of goods and services and this rate must be between 15% and 25%. Ireland's standard rate is currently 23%. Member states may also apply up to two reduced rates of VAT of between 5% and 15% on set goods and services listed in annex III of the VAT directive. Ireland, along with the majority of member states, operates two reduced VAT rates of 9% and 13.5%. The VAT directive also allows member states to apply a zero rate, reduced rate or a rate of less than 5% to goods and services where such a rate applied to those goods or services on 1 January 1991.

The supply of surfing lessons is subject to VAT at the standard rate of 23%. As annex III of the directive does not include surfing lessons it is not possible to apply a reduced VAT rate to surfing lessons. Furthermore, as surfing lessons did not qualify for reduced, super reduced or zero rate of VAT on 1 January 1991 it is not possible to apply any of those VAT rates to surfing lessons. Consequently, surfing lessons must be charged at the standard VAT rate of 23%.

For Ireland to apply the 9% reduced VAT rate to the supply of surfing lessons we would require an amendment in the VAT directive to include the supply of surfing lessons in annex III. Changes to the VAT directive are made periodically by the European Council of Finance Ministers following detailed analysis and negotiation at the Council working party on tax questions. A number of goods and services were added to annex III in 2009, primarily related to labour-intensive services, following six years of negotiations on the matter.

While many tourism related services were made subject to the lower reduced VAT rate of 9% from 1 July 2011, this rate only applies to those tourist related goods and services that are listed under annex III of the VAT directive. Some tourism related activities not listed under annex III continue to be subject to VAT at 13.5% and 23%, while others are exempt from VAT. The 9% VAT rate introduced on 1 July 2011 applies to restaurant and catering services and hotel and holiday accommodation, including guesthouses, caravan parks and camping sites.

Other activities related to tourism that are subject to the 9% rate include various entertainment services such as admissions to cinemas, theatres, certain musical performances, museums, art gallery exhibitions and fairgrounds or amusement parks. The use of sporting facilities, including green fees charged for golf and subscriptions charged by non-member owned golf clubs, also apply at the new lower VAT rate. Admissions to historical houses and gardens, including open or pet farms, also apply at the 9% rate. Finally, hairdressing services, which is a growing activity connected to hotel services, also applies at the 9% rate, as does printed matter such as brochures, maps, programmes, leaflets, catalogues and newspapers. Books are already subject to VAT at the zero rate.

Tourism related activities that are charged at the 13.5% rate include tour guide services and the short-term hiring of cars, boats, caravans, mobile homes, tents or trailer tents. Passenger transport, including the transport of tourists, is exempt from VAT. All other goods and services related to the tourist industry, including surfing lessons, apply at the standard VAT rate of 23%. In addition, while restaurant and catering services apply at the 9% rate, alcohol or soft drinks sold as part of a meal, or otherwise, are liable to VAT at the 23% rate.

However, an exemption from VAT may still apply to surfing lessons in certain circumstances. Surfing lesson providers, like any other service businesses, may opt not to register for VAT if their turnover is under the VAT registration threshold of €37,500 per annum. Where this is the case VAT will not apply to the lessons.