Joe Costello (Dublin Central, Labour)
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Question 138: To ask the Tánaiste and Minister for Finance his proposals for a review of current VAT classifications with a view to reducing the rate of VAT applied to certain environmental goods and services in regard to the commitment contained in the Programme for Government; and if he will make a statement on the matter. [17152/07]

Brian Cowen (Laois-Offaly, Fianna Fail)
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The Programme for Government contains a commitment to examine the scope for reducing the VAT rate on environmental goods and services from the standard VAT rate of 21 per cent to the reduced rate of 13.5 per cent. I should mention that this is just one of a number of initiatives in the Programme aimed at delivering a cleaner environment.

In carrying out this examination account will be taken of the growing range of environmental and renewable energy products which present opportunities to reduce our dependence on conventional energy systems and can make a contribution to tackling Climate Change. For example, energy-efficient insulation materials, renewable energy systems including wind, solar and geothermal systems, and the options arising in the bio-energy crop sector will be examined.

In considering a change in VAT arrangements for these, or indeed any other, goods and services, it is important to bear in mind that the treatment of goods and services is subject to EU VAT law with which Irish VAT law must comply.

It is important however to point out that the reduced rate of VAT of 13.5 per cent may currently be applied to insulation materials and renewable energy systems where these products are supplied and installed as a single contract and where the VAT-exclusive cost of the goods does not exceed two-thirds of the total VAT-exclusive charge to the customer. I understand that the bulk of supply and install contracts are likely to meet this so-called "two-thirds" rule, resulting in the reduced VAT rate of 13.5 per cent rate being applied. Consequently, under existing VAT arrangements, the reduced VAT rate can apply to environmental products where they form part of such a supply and installation arrangement.

The reduced VAT rate of 13.5 per cent also currently applies to the supply of all fuel products, including wood pellets, used for home heating and light. Ireland is one of only eight Member States that apply a reduced VAT rate to the supply of fuel products used for home heating and light.

The purpose of our proposed VAT review is to examine whether there is scope within EU VAT law to further extend the application of the reduced VAT rate in the area of environmental goods and services. This and other measures under the Programme for Government clearly demonstrate the Government's commitment to addressing the environmental challenges which we face.